What you need to know
- Several equity analysts believe Apple could one day become a $2 trillion company.
- They say the first key to success will be continued innovation.
- The other is services, which could see Apple's earnings grown by 10-15% over the next five years.
Several equity analysts believe that through innovation and services, Apple has the capacity to become a $2 trillion company.
According to Forbes, several analysts keeping a close eye on AAPL believe that it could smash through the next big milestone of $2 trillion in market capitalization, as long as it keeps innovating and pushing services to its users.
Analyst John Zolidis pointed out Apple's strong profitability. With an operating margin of 27% in its most recent year, he says:
It generates very large amounts of excess cash. Over the past five years, AAPL has generated an average of $59 billion per year. The company had over $100 billion in cash on the balance sheet at the end of the most recent quarter."
Zolidis believes that innovation will be the "next big thing" to push Apple towards $2 trillion. Although really, innovation is a thing that Apple continues to do and is already quite good at. According to the report, he believes:
"Our view is that if the company continues to innovate and create fantastic products it will maintain its dominance or grow share in existing or adjacent global categories... It will continue to produce excess free cash flows and these will either be returned to shareholders or reinvested in technology or growth. If all these things can happen, then $2 trillion is possible. Some day. So far it has been smart to bet on AAPL's continued success."
The other reason to suggest Apple will have a bright future is its services. Leon Wilfan of Lahardan Financial believes that Apple's current valuation is conservative and that it can grow its earnings by 10-15% in the next five years"
"The reason for my bullish prediction lies in Apple's services business. I believe it has massive potential.., accelerating growth in its burgeoning services business, combined with booming demand for its wearable devices, led by its popular AirPods, underline the case for Apple to hit the $2T market cap level by 2024."
Willan further cites the unique ability of Apple products to pull customers into its ecosystem, citing a 90% customer retention rate:
"When you have such a loyal and active customer base, all you need to do is start offering them services…precisely what Apple has been doing... If you look at Apple's revenues, services are up by about 25% YoY, and now represent 20% of the total."
Wilfan also notes that Apple claims it will double its service revenue in 2020 and that even if it only achieves that by 2021, it will still be significant enough to push its valuation much higher.
So buy your loved ones Apple stock this Christmas, and see their faces light up as they unwrap the prospect of a burgeoning services business and innovation that will propel Apple to $2 trillion in value.