“Over the past ten years, Apple stock has soared nearly 1,300% thanks to robust demand for the iPhone and iPad, which together accounted for 71% of the company’s top line last quarter,” Leo Sun writes for The Motley Fool. “Between fiscal 2004 and 2014, Apple’s annual revenue soared 2,108% to $182.8 billion.”
“But looking ten years down the road, things look murkier for Apple,” Sun writes. “The biggest problem for Apple is its lack of product diversification. In the fourth quarter of 2014, it relied on iPhone sales for 58% of its revenue. Although iPhone revenue rose 21% year-over-year thanks to the launch of the iPhone 6 and 6 Plus, it’s a growth trajectory that will be tough to sustain over the next ten years.”
“The moment that iPhone sales stop rising, Apple stock will tumble. To prevent that from happening, Apple encourages brand loyalty by tying all app and media purchases to an Apple ID, ensuring that iPhone users think twice before switching to an Android device,” Sun writes. “That strategy, enhanced by the iPhone’s premium appeal, pays off. In July, Morgan Stanley’s Alphawise tracker found that 90% of iPhone users stick with Apple, compared to a 77% retention rate for Samsung.”
“If Apple can’t properly diversify its top line and iPhone sales slip, the stock could falter. If Apple subsequently boosts buybacks and dividends to placate shareholders, it could tie up the cash it needs to make major acquisitions,” Sun writes. “Most importantly, investors should remember that Apple’s walled garden can both help and hamper its long-term growth. However, if Apple successfully rolls out new products, the stock could soar higher as the Apple brand expands beyond phones and tablets.”
Read more in the full article here.