It seems like only yesterday that Apple (NASDAQ:AAPL) was trading around $130 and I was writing about how AAPL stock could hit $200.
Well, trading within 6% of $200, I’ve decided to up the ante. Unlike $200, which has been a surprisingly tricky hurdle, hitting $400 within the next 36 months could come more easily.
However, to do so, it’s going to need the help of these five things.
Services Revenue: In February, I highlighted the fact that Apple’s services revenue along with Apple TV, Apple Watch and its Beats products grew by 25% in the first quarter to $14 billion.
That kind of quarterly growth has got to keep happening if it has any chance of AAPL stock hitting $400 sooner rather than later.
“Apple Services in total represent about 15 percent of total company sales and is the second largest contributor to margin dollars,” Citigroup analyst Jim Suva wrote in a recent note. “Apple’s internal goal to double Service revenues from fiscal year 2016 to fiscal year 2020 seems reasonable.”
In fiscal 2016, they were $24.3 billion so let’s say $50 billion by 2020. I’d add that its Other Products segment should also double from $11.1 billion in fiscal 2016 to $25 billion in 2020, although this goal isn’t nearly as vital to AAPL stock hitting $400.
Apple Retail Stores: Long known in retail circles for generating the highest revenue per square foot, Apple’s transformation of its stores into town squares must continue to deliver market-beating retail numbers because they are the company’s advertising billboards.
If customers aren’t buying as much in the stores because the experience worsens, the entire business will suffer.
“Retail is not dying, but it has to evolve. It has to continue to move and I think it has to serve a bigger purpose than selling, because anybody can do that faster, cheaper,” Angela Ahrendts, Apple’s head of retail recently said in Cannes, France.
Apple’s stores are only going to get bigger, not smaller, so it can deliver the right message to consumers, which includes its education program, Today at Apple.
Bringing iOS closer to MacOS: Apple is launching Mojave this fall, its latest operating system for Apple computers, which will allow some iOS apps on the iPhone and iPad to work on the Mac operating system.
While Apple is quick to point out that it’s not in the process of merging the two operating systems, I think it only makes sense for specific apps that I have on my iPhone should be able to work on my Mac.
I’ve said in the past that the iPhone is the driver of the bus. However, its Mac computers both laptops and desktops can’t be forgotten because even though we do a lot of work on our phones these days, we’re still going to need computers to do the severe lifting, not to mention the bigger screens for our aging eyes.
Apple is rumored to be bringing out a slew of new laptops in the fall that will boost its revenues in that often forgotten piece of its business.
Emerging Markets: The developed markets have been great for building Apple into what it is today. That said, it’s got to do a better job getting its products into the hands of those in emerging markets where the real growth is.
As InvestorPlace’s Bret Kenwell stated in May, Apple’s revenue in Q2 2018 increased by 21% to $13 billion. On an annualized basis it should come pretty close to $62 billion in fiscal 2018 with operating income about 40% of that.
The third-biggest market for Apple regarding revenue, it makes about 38% operating profits on its Chinese sales, approximately 700 basis points higher than in the Americas and Europe.
As Brett suggests, if Apple can figure out how to sell cheaper versions of its products in China and India in the next two-to-three years, AAPL stock has a great shot at $400.
The iPhone: Although the first two quarters of fiscal 2018, iPhone sales have accounted for 67% of Apple’s overall revenue. No other segment comes close.
Either Apple seemingly delivers a new product out of nowhere in the next two years to pick up some of the slack from a potential iPhone slowdown or Apple figures out how many higher-priced iPhone X’s it needs to sell to grow iPhone revenues by double digits on a quarterly basis going forward.
In the latest quarter, it sold 3% more iPhone’s, which translated into a 14% gain in revenue. It has to keep doing this to hit $400 within 36 months, which is probably a tall order.
The Bottom Line on AAPL Stock
Over the past five years, AAPL stock has achieved a total annualized return of 27.2%. For Apple stock to get to $400 within 36 months, it has to generate 29% annual returns.
That’s a very tall order indeed.
To get there, the iPhone can’t have a letdown and emerging markets have to keep growing profitably. Without those two things, AAPL stock won’t hit $400 in six years, let alone three.
That said, I’m still a fan.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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