Apple’s 10-Year Journey: A Model of Resilience and Growth

If you invested in Apple (NASDAQ: AAPL) stock a decade ago and held onto it, you’re likely feeling pleased. Over the past ten years, the stock has soared nearly 800%. This means a $50,000 investment today would be valued around $450,000.

Apple’s transformation is remarkable. From the edge of bankruptcy, the company has risen to become one of the largest firms globally. Some might wonder if its current size can sustain similar growth in the future. However, several factors suggest continued promise.

Firstly, Apple achieved its 10-year success while already standing as the world’s largest company at the outset of this period. Additionally, notable growth occurred under the leadership of its late founder, Steve Jobs. This leads to an exploration of whether investing in Apple now could secure your financial future.

Why Apple is a Strong Investment

Although Apple is primarily celebrated for its iPhones, its service division has become a substantial revenue generator in recent years. The company benefits from the app store, claiming up to 30% of sales in most regions, and 15% from smaller developers.

This revenue-sharing model is competitive; for example, Roku takes a 20% to 30% cut for participants on its platform (excluding Netflix). However, Apple’s app store has relatively minimal distribution costs, which leads to higher profit margins. Last quarter, its services sector enjoyed 74% gross margins compared to 35% in its product sector.

Apple’s services encompass profitable areas such as Apple Pay, Apple Care, and cloud storage. Additional offerings like Apple TV and Apple Music, though beneficial, tend to generate lower margins due to content expenses.

The company’s success stems from its cohesive ecosystem. Users find the Apple experience seamless and comforting, resulting in a strong customer retention rate. Thus, even amid recent sales challenges, Apple’s service revenue grew impressively, reporting a 14% rise last quarter.

Looking ahead, Apple might capitalize on the rise of artificial intelligence (AI). This growth could manifest in two primary ways: first, AI might trigger a cycle of hardware upgrades as consumers seek newer iPhones capable of supporting advanced applications. Second, increased purchases of AI-driven apps could further boost revenues.

Image source: Getty Images.

Understanding the Risks Involved

Despite its advantages, Apple investment carries inherent risks.

Faced with potential revenue loss, Apple may lose significant earnings from its arrangement with Alphabet, which pays for exclusive status as the default search engine on Apple devices. Following an antitrust lawsuit, this deal, estimated at up to $25 billion annually by Jefferies analysts, could change. Although this amounts to just around 6% of Apple’s total revenue, it significantly contributes to operating profits—projected as nearly 20%.

The terms resulting from the Alphabet lawsuit remain uncertain, but the exclusive agreement is likely to face revisions. It’s reasonable to expect some revenue could remain, potentially through a non-exclusive arrangement. Users generally prefer Google as their default search option, so a decrease in payments might occur, but other search engines are likely to need to pay for visibility as well.

Alternatively, Apple could pursue its own search engine, keeping all revenue generated from it. Although the company currently prefers Google, developing an independent engine may serve as leverage in negotiations.

Additionally, Apple’s App Store may face regulatory scrutiny over its profit-sharing practices. Complaints from various companies regarding Apple’s cut could lead to changes. However, Apple has successfully navigated legal challenges in the past and has implemented innovative strategies to address similar concerns in Europe.

The Long-Term Outlook for Apple

While challenges exist, Apple has historically shown resilience and creativity in addressing them. This is why the stock remains a long-term favorite among investors. Anticipated developments in AI may provide further momentum for stock appreciation.

Even though Apple’s stock alone may not guarantee a secure financial future, it can serve as a reliable foundation in a diverse investment portfolio.

The Opportunity You Don’t Want to Miss

Have you ever felt like you missed the chance to invest in top-performing stocks? Here’s your new opportunity.

Occasionally, our team identifies “Double Down” stock recommendations, which highlight companies poised for significant growth. If you’re concerned about missing out, now might be the best time to invest before conditions change. The numbers highlight past successes:

• Amazon: If you invested $1,000 when we recommended it in 2010, you’d have $21,285!
• Apple: If you placed $1,000 in 2008 based on our advice, you’d have $44,456!
• Netflix: Similar investment of $1,000 in 2004 would have grown to $411,959!

At the moment, we’re sharing “Double Down” alerts for three outstanding companies; opportunities like this may not arise again soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 14, 2024

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, Netflix, and Roku. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.