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If you’ve been following Apple (AAPL 0.67%) from an investment perspective — and even if you haven’t — you probably already know that most of its revenue comes from sales of the iPhone. That’s why analysts who cover the tech giant are always speculating about how many iPhones it will be able to ship in a given year.
In addition, of course, Apple also sells iPads, Macs, Apple Watches, AirPods, Apple TVs, and HomePods, among other devices. However, analyzing Apple’s hardware sales only provides a superficial understanding of its sprawling business. To dive deeper, let’s review three other facts about Apple that only the smartest investors will likely know.
Image source: Apple.
Apple’s services segment, which generated 18% of its revenue in the first half of its fiscal 2022, is arguably more important than any of its hardware businesses. This segment includes iCloud, Apple Pay, the App Store, and subscription-based digital media services like Apple Music, Apple TV+, Apple Arcade, and Apple Fitness+. It also covers its Apple Care services.
These are the building blocks of a prisoner-taking ecosystem that essentially locks in Apple’s customers and reinforces their loyalty to iOS devices. Unlike Alphabet‘s (GOOG 0.30%) (GOOGL 0.30%) Android OS, which lets its users easily switch between different brands of Android devices without losing their data, Apple’s proprietary operating system and services steer its customers along a single upgrade path toward other iOS devices.
As of March 26 — the end of Apple’s fiscal 2022 Q2 — it had 825 million paid subscriptions across all of its services — which represented a net addition of 165 million paid subscriptions over the prior 12 months. During the earnings conference call, CFO Luca Maestri said the company would “continue to improve the breadth and the quality of our current service offerings while launching new services.”
In October, a survey by Consumer Intelligence Research Partners found that the loyalty rate for Apple’s iPhone in the U.S. had surpassed 90% for the past three consecutive years. None of the Android leaders, including Samsung, came close to matching that.
Apple’s customer loyalty has also been supported by its growth as a global luxury brand. A few years ago, the Hurun Research Institute found that Apple had surpassed LVMH‘s Louis Vuitton, Hermès, and Richemont‘s Cartier as China’s most coveted luxury brand.
No other smartphone maker made that list. That cachet gives Apple a lot more pricing power than its industry peers.
Apple plans to leverage the stickiness of its brand to launch new hardware products over the next few years. Its first target will likely be the nascent market for augmented reality (AR) and virtual reality (VR) devices.
Apple has reportedly been developing at least two AR/VR devices. The first one is rumored to be an AR/VR “mixed reality” headset that could arrive in 2023. This device could compete against Microsoft‘s HoloLens and Meta Platforms‘ (META -0.32%) Quest headsets.
The second device could be a sleeker pair of AR smart glasses that might launch in 2024 or 2025. Meta, which launched its Ray-Ban Stories smart glasses last year, also has similar products in its pipeline.
Image source: Getty Images.
Apple has built a new operating system for these AR/VR devices called rOS, which includes its own native App Store. These plans strongly suggest that Apple will emerge as a major competitor to Meta in the expanding “metaverse” market.
Lastly, Apple has also been developing an autonomous electric vehicle (EV) codenamed “Project Titan.” The latest rumors suggest it could launch between 2024 and 2028, but not much else is known about the vehicle yet. If Apple actually launches a luxury EV, it could spell trouble for market leaders like Tesla and newcomers like Lucid.
For Apple, the year-over-year comparisons it has ahead will be tough, as last year, its sales were notably boosted by people upgrading to 5G devices. And like companies all across the economy, it’s also grappling with ongoing supply chain challenges. As such, investors should expect its growth to decelerate this year.
Nevertheless, Apple still has plenty of irons in the fire, and I believe its stock is reasonably valued at 23 times forward earnings. Its shares might not blast off anytime soon — especially as rising interest rates rattle the markets — but it’s still a solid investment for long-term investors.
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