Apple $3 Trillion Valuation: The Strength Behind Skyrocketing Valuation

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Apple Inc. (NASDAQ:AAPL) once again made hundred of millions of heads turned on January 03, 2022 when its valuation in the stock market touched $3 trillion, albeit for a brief period. It was slightly down to $2.93 trillion on 05 January 2022 morning though, it was still a staggering number that no company ever reached before.

The event was an excellent opportunity to explore the nature and the history of Apple and the other technology giants. Big tech companies are skilled in the creation of products and have mastery when it comes to minting billions. This is one of the main reasons Apple is so valuable that only a few companies are in a position to challenge its domination in the near future.

The meteoric rise and unparalleled performance of the Cupertino giant lead us to brainstorm on Apple’s greatest strength that has made the company achieve new milestones at regular intervals!

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With its clever tweaks and impressive products that have extended the lifespan of the iPhone empire far beyond the point where it could have slowed down. Nearly half of the company’s revenue comes from a single product – iPhone. However, what was supposed to be Apple’s flaw – its dependence on its iPhone in a time where smartphones aren’t selling like hotcakes – has proved to be an asset.

Similar to how Google and Facebook make money through the sale of ads for hotel rooms and socks, knowing what lies behind the exceptional performance of Apple’s products & services in the market can help you understand the titans of technology that have attracted our admiration and ridicule.

Just a few years ago many failed to evaluate the true potential of Apple when its stock price started taking a dive, and market pundits were quick to write off Apple. Just to put things in perspective, since 2015, sales at Apple have grown to more than $132 billion which is about three times the amount Tesla’s sales have grown during the same period. Considering the price tags of Apple’s products and the margin, the company’s profits are beyond expectations as customers are finding nothing wrong in paying way too much for their Rs 1,900 polishing cloth.

It’s true that Apple’s flagship product iPhone is slowly losing its mojo, and rarely receives a ‘wow’ response from customers who aren’t purchasing the new smartphones as often as they did in the past.

In 2016, around 1.47 billion smartphones were sold around the world. Since then the yearly sales of smartphones are declining with each passing year. Despite returning to yearly growth, the global smartphone shipment in 2021 is estimated to reach 1.35 billion only. The contribution of the iPhone to the global figure, however, has not changed much. Apple is unlikely to enjoy a significant increase in its market share and is expected to account for just 17% of the total smartphone shipments in 2021. There are some exceptions to this flatline trend in iPhone sales such as last year when the new iPhones 12 series were sold like hotcakes.

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The declining sales of smartphones are not due to the pandemic, but it’s due to the fast-changing shopping preferences of customers. Unlike refrigerators, cars, and television sets which people are looking to buy or upgrade more often, the upgrade cycle of smartphones is only increasing in the premium and ultra-premium segments. In theory, the trend of people buying fewer smartphones should go against Apple. Despite this, Apple has done great because it’s extremely smart with marketing strategies, and has convinced consumers to buy the products it offers.

Apple has come up with ways to sell more ‘kinds of iPhones‘ than it ever did in the past, including expensive ones. It has identified under-appreciated aspects such as self-designed computer chips, and has pushed iPhone customers to buy more expensive versions of iPhones that offer more space to store photographs and videos. The company is constantly finding ways to earn money from products that make iPhones more efficient, such as subscriptions to applications for dating, AirPods computers, and watches.

This isn’t because Apple is moving away from its position as an iPhone company. It is gaining more from its iPhone dependency and leveraging as on it like never before. The company is making iPhone a complete ‘ecosystem’ in itself instead of just a smartphone. 

Undoubtedly, it’s tough for Apple to continue like this forever; the sales of smartphones have been mediocre over the last six years but Apple has achieved new milestones at regular intervals.

All of it makes the explanation for the rapid growth of Apple towards $3 trillion much more complicated. It doesn’t seem logical at the moment, frankly. Despite, the big tech companies continue to add pages to their revenue and profit books which, in turn, is making stock investors fall for it.

Interestingly, many analysts believe that this could just be the beginning for Apple! The excitement about Apple unveiling its first products with face computers as well as driverless cars would take Apple from single-digit trillion dollars valuation to double-digit trillion-dollar valuation in the next few years. Apple could emerge as the trendsetter, just like iPhone, in the new areas of interest to make other companies follow and become richer.

All said and done, the road to double-digit trillion-dollar valuation is not going to be a cakewalk for Apple as its struggle with smart software is well known. Have you been scolding Siri lately for not knowing what you were talking about? To continue to be on a winning spree in the future that belongs to metaverse or artificial intelligence, Tim Cook and Team will have to start focusing more on services and software than devices alone. Probably, they have already read the writing on the wall, and the increasing share of their revenue coming from services in the last few quarters is a testimony of the fact.

Tim Cook continues to claim that iPhone is not for everyone, and he doesn’t want people to buy iPhone just for mindless scrolling. In nutshell, he has indicated that services and software that will allow the company to generate recurring revenue is going to be the area of focus in years to come. But does it mean that, like Mark Zuckerberg who recently rebranded Facebook to Meta in a bid to go beyond social media, Apple too has started looking beyond iPhone? Only time will tell!

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