Apple CEO Tim Cook will soon have more to brag about.
The company is just inches away from becoming the first company in the world to cross the $3 trillion market cap milestone. The tech behemoth was the first ever to hit $2 trillion on Aug. 19, 2020, and was also the first to $1 trillion in August 2018. Here are three factors that have been powering its stock to record highs …
1. Too Big to Fail
Apple stock rose a stunning 36% this year, adding to the gains it saw in 2020 even as the COVID pandemic threw countless challenges the company’s way, including serious supply chain issues. Cook estimated the chip shortage cost Apple around $6 billion, which was bad news ahead of the crucial holiday season. But not even that could stop the iPhone maker.
Though Apple “disappointed” Wall Street with its latest fiscal fourth-quarter earnings, investors don’t seem to care. The company saw impressive year-over-year growth across all its product categories,and record revenue in its fiscal 2021 year.
The future is bright for Apple, and there’s really not much standing in the way of maintaining its market leadership. Though Apple stated that the supply chain disruptions and chip shortage would affect the company, the impact is not nearly as bad for Apple as it is for other companies. As long as Apple can continue hitting record revenues and growth, record highs for the stock will follow suit.
2. Further Expansion of Its Services Business
While iPhone sales are imperative to Apple’s overall success, the company’s focus on growing its Services business has been paying off. The iPhone still represents more than half of the company’s total revenue, but the Services segment has been steadily increasing its share.
Apple collects subscription revenue from Apple Music, Apple TV+, iCloud, Apple Arcade, Apple News+ and Apple Fitness+. Revenue collected from Apple Services rose 26% year-over-year in fiscal Q4, to a record of $18.3 billion. And according to CFO Luca Maestri, Apple had 745 million paid subscribers as of the end of its fiscal Q4, up from just 160 million last year.
Wall Street analysts are growing even more bullish on the future of Apple’s Services business. Though Apple hasn’t formally announced any plans to launch augmented reality and virtual reality headsets, analysts believe it is on the horizon in the near term. If those predictions come to fruition, it could provide another major revenue stream on both the product and services sides.
3. M&A Chatter
Another major way Apple could further expand its ever-important Services biz is by putting its huge cash pile to use by beefing up growing Apple TV+. Despite some early struggles, the streamer is slowly creating a name for itself in the entertainment industry, with original series “Ted Lasso” and “The Morning Show” recently getting the recognition they deserve from Hollywood.
M&A activity has been on fire in the media sector this year, as the competition in streaming reaches all-time highs. Consolidation is expected to continue next year, and Apple is among the big names experts speculate could be among the suitors.
Cook said on the company’s latest conference call that he was proud of the Apple TV+ content lineup. But with a sizable media merger or acquisition, he could be even more proud down the line.
As of the end of its fiscal 2021, Apple sits on a cash pile of about $190 billion. A couple weeks ago, VIP+ wrote about the content company fire sale that has been underway over the past year or so. Content makers are being scooped up at sky-high valuations, but luckily for Apple, it has the deep pockets to make such a purchase.
According to the rumor mill, A24 is a company that would make sense for Apple to buy. It was reported in July that A24 was looking into strategic options, including a possible sale. Of course, there has never been any definitive information or announcement, but Apple has previously expressed interest in the studio. While $3 billion seems ridiculous, in the grand scheme, the investment could very well be worth it for Apple.
Apple has a lot of reasons to celebrate heading into the new year, but investors will be watching very closely to see how the company positions itself going forward. Focusing on continuing to invest in its strengths and opportunities for the future will be key sticking points as the tech giant looks to further dominate the world in 2022 and beyond.