Since the new iPhones were announced on September 9, the stock has risen about 16%, and since the company announced earnings on October 21, shares have gained 11%.
Apple is the most profitable company in the world that is not a Chinese government-backed bank. It enjoys the highest brand loyalty among tablet, smartphone and headphone (since acquiring Beats Music) buyers. And brand loyalty translates into margins, and margins translate into profits. It is a virtuous circle indeed.
The obvious question is whether the company can keep the rally going to a market cap of $700 billion and beyond. The company’s smartphones accounted for more than half its net income in the fiscal year just ended. The company owns more than 40% of the U.S. smartphone market, and its closed ecosystem, virtually guaranteeing a stable base of consumers for as long as the company doesn’t make a terrible misstep. And that seems unlikely.
The just-launched Apple Pay system has significant promise, but a lot depends on how quickly current iPhone users who don’t own the 6 or 6 Plus upgrade to the new hardware. Again, this is an area where Apple’s brand loyalty could lead consumers to demand that stores adopt the system.
Finally, there’s the Apple Watch, which is scheduled to ship early next year. Apple has got to be pretty confident in its new product if it was willing to let the holiday slip past without releasing the watch. Acquity Group, a division of Accenture PLC (NYSE: ACN), released a study recently indicating that ownership of wearable devices will double from 7% this year to 14% in 2015. By 2016, Acquity reckons that the adoption of wearable devices will have hit 28%. Apple could easily nab a large fraction of this market.
Apple’s shares posted a new 52-week high of $114.08 Friday and traded up more than 1% at last look at $113.95. The 52-week low is $70.51.
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