Apple Becomes First $ 3 Billion Company After Pandemic Demand Rises
Apple became the first company to reach a market cap of $ 3 billion, after its value increased by $ 1 billion in less than 16 months as the coronavirus pandemic supercharged Big Tech.
The iPhone maker turned into a billion dollar company in August 2018, and two years later became the first company to be valued at $ 2 billion. On Monday, the company’s shares rose 3% to $ 182.86, surpassing the latest milestone, before falling back to $ 182.
Apple briefly lost its title to the world’s most valuable company to Microsoft at the end of October. However, a strong rally in November restored its crown. It then increased until the end of 2021 and has added half a trillion dollars to its market value since November 15.
Only a handful of companies are worth more than $ 1 billion, including Tesla and Amazon. Google’s parent company Alphabet and oil group Saudi Aramco are valued at around $ 2 billion, while Microsoft’s market value is around $ 2.5 billion.
Apple’s stock soared more than 30% in 2021 as it skillfully navigated the supply chain crisis and benefited from additional demand during the pandemic for iPhones, Macs, and iPads as the customers were modernizing their home offices.
The stock jumped in early December after analysts at Morgan Stanley raised their 12-month price target to $ 200, arguing that investors had yet to anticipate the planned launch of augmented and virtual reality devices.
Moody’s also upgraded Apple to triple A in December, making it only the third triple A company to be assessed by the rating agency, alongside Microsoft and Johnson & Johnson. S&P Global still rates Apple at AA +, one notch below AAA.
Tom Forte, analyst at DA Davidson, said investor enthusiasm for Tesla and electric vehicles was trickling down to Apple shares as well, with hopes that the iPhone maker will enter the auto industry in the near future. over the next half decade.
There was also strong activity around Apple in the derivatives markets, with traders betting the stock would continue to rise.
Apple’s market value has now grown to nearly $ 2.7 billion in a decade under Tim Cook, a feat that has surprised critics who questioned his credentials after taking over from Steve Jobs.
Cook’s success since then has been built on his behind-the-scenes ability to manage supply chains and sell products in bulk, while fending off regulatory and political threats in Washington, Brussels and Beijing.
“Cook was seen as a safe bet but rather a conservative one,” said Ben Wood, chief analyst at CCS Insight. “But what he delivered is nothing short of astonishing. It made the iPhone franchise the most lucrative consumer electronics item in history.
Morgan Stanley analyst Katy Huberty noted that Apple’s stock price has risen by around 500% in the past five years alone, outperforming the S&P 500, which has gained around 105% in the last five years. same period.
As a result, Apple is now trading at a historically high price-to-earnings ratio above 30, down from a three-year average of 23.4, according to DA Davidson.
But few analysts believe the stock is in bubble territory. Of the 45 analysts who cover Apple, 35 see it as a buy and two see it as a sale, according to Bloomberg.
The bullish outlook reflects how Apple has been reassessed by Wall Street for its expanding, high-margin service business that has generated recurring revenue and broken its reliance on iPhone replacement cycles.
Apple, which generated more than $ 1 billion in revenue per day in the fiscal year ended September, now has 745 million paying subscribers to an ever-growing range of services, including music streaming, video streaming, and video streaming. demand and fitness, and warranty coverage.
Over the past year, its service businesses have accounted for nearly $ 70 billion in revenue, double the level of four years ago. In the previous quarter, unit margins hit an all-time high of 70.5%, more than double the margin on hardware sales, according to Evercore ISI.
One of the biggest risks to Apple and its stock price is that the pillars of the service industry will be upended by policy changes.
Lawmakers in Washington have raised questions about the estimated payment of $ 8 billion to $ 12 billion each year that Alphabet is granting to have Google search by default on its devices, while others have targeted the App’s business model. Apple store consisting of reducing by 15 to 30%. on certain operations.
Apple has so far been relatively unscathed. In the United States, Epic Games sued him last year for allegedly operating an illegal monopoly, but Epic lost nine of the ten counts. When Apple appealed for the only loss, a higher court granted its request and deferred the lower court’s order to open the App Store to competing payment platforms.
Meanwhile, Apple has also significantly diversified its hardware offerings into AirPods, Apple Watches, and other accessories.
Huberty noted that a market for “wearables” like the Apple Watch barely existed in 2014, but is now a “$ 38 billion company – the size of a Fortune 120 company.”
Additional reporting by Joe Rennison and Eric Platt in New York