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The making of 2-trillion-dollar market-cap of Apple

The USA is the largest capital market representing ~40% of world equity. Rich money flows to US-listed companies from around the globe.

August 25, 2020 / 11:59 AM IST

Pritam Deuskar

It should not be a surprise that Apple soared to $2 trillion m-cap last week. Apple has over $273 billion revenue with 22 percent profit margins.

Apple’s star product iPhone now contributes about 50 percent of revenue, services business that has high-profit margins contributes 22 percent, accessories & mac iOS 10 percent each whereas iPad 7-8 percent.

Services have 64 percent gross margins which has music subscription, storages and AppleCare warranties. The company was once for computers and Mac OS many years ago which completely transformed itself into iTunes, iPad, and iPhone.

iPhone has become a true fan follower cult where youngsters (even those who deny/criticize to buy expensive) desire to have possessed iPhone due to feature, exclusivity, show off whatever. Also, each product launches has been grand for world viewers to notice and watch eagerly as an event.

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The company is also banking on new-age opportunities like wearable tech that has watches, Airpods, an augmented reality where the size of the segment itself can reach fortune 500 or even 200 companies with 50 percent growth in revenues. It contributes $6.7B to total revenue.

The company has introduced the 14th generation iOS. It also stopped using Intel processors for Mac and will instead use ARM-based processors built in-house.

Apple had spent $16.2 billion on R&D. The constant innovation, and thrive for excellence is what make Apple a unique company in the world.

It is currently trading at 30 times of FY20 earnings estimation (with a 2-year average PE of 28 times). The company has cash of $193 billion.

With an ROE of 68 percent, Price-to-sales of 7 times and generated a free cash flow of $60.1 billion. The customer retention rate of 90 percent plus consistently is phenomenal.

Veteran investor Warren Buffett’s Berkshire Hathaway now owns more than 90 billion USD in Apple and is said to be 40 percent-plus of its portfolio.

Switzerland national central bank bought 3 million more Apple shares in the first quarter, raising its investment in the iPhone maker to 17.3 million shares.

So, one has to have great investors in the companies who desire to reach such a market cap, and there are few things that are quintessential and must.

1. Being a global company 2. Subscription models backed with cloud, AI, and services. 3. Branding products and services that make them part of the culture in the daily livelihood of people. When new products (new to the market first time) come they are slowly accepted by society and they become routine like iPhone, Windows, Amazon, Google, and so on.

When this happens in the coming decade from Indian companies, they will be such m-cap. Also, the USA is the largest capital market representing ~40% of world equity. Rich money flows to US-listed companies from around the globe.

Yes, in today’s globalized easy access world if we are not investing in global and tech giants then it’s kind of a sin than just a mistake.

Now Indians can easily invest in US-listed companies and many predominant broking houses are having tie-up with US brokerages and providing inexpensive services to invest there, investors should really take advantage of it.

We do research US companies and stock recommendations like Amazon Microsoft and Adobe have done fantastic this year.

These giant techs too will capture $ 2 Trillion Mcap. Most innovative, high tech, global presence and revenue & platform base make US-listed companies so great.

(The author is Founder of Wealthyvia.com)

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Pritam Deuskar

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