Editor’s note: This is part seven of a 13-part series about companies whose shares have amassed 100,000% returns for investors and the path taken to generate such impressive gains over the long term. See below for links to the other stocks in this series.
The roots of Apple’s (AAPL) success are attributable to so many important factors that it would require book-length treatment to give them all justice.
But some important themes that contributed to its incredible growth include a combination of continuous innovation, strategic and at times ruthless management, strong brand loyalty, and a robust ecosystem of products and services.
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Starting with the Apple II and Macintosh, Apple redefined personal computing and then came to dominate how it functioned. In 2001, when desk and laptop computing became saturated with competitors, Apple extended computing into devices with the iPod. The iPod and the notion of device-driven computing set the stage for the iPhone which was introduced in 2007.
Since then, Apple, and the world, have never been the same. By 2023, iPhone sales reached $200 billion, accounting for over 52% of Apple’s total revenue of $383 billion, reflecting the company’s ability to redefine markets and then dominate them.
In terms of importance, sales of the iPhone extend well beyond the mobile device market. Now, there are an estimated 1.4 billion iPhone users in the world.
While they have driven Apple’s earnings, they have also done something else. They have knitted 1.4 billion users to the Apple ecosystem so tightly that the bond is almost unshakable. Apple has capitalized on the bond with an array of services that now represent the fastest-growing revenue segment of the company.
Revenues associated with the App Store, iTunes Store, AppleCare, iCloud, licensing, music, television and credit cards have grown at approximately 18% annually and now represent $85 billion in sales. Services sales are almost as large as Apple’s Mac, iPad and wearables businesses combined.
But it’s not just the top line that matters. Stock prices are driven by earnings. And services have dramatically higher margins. For 2023, the gross margin on services was 71%, almost double the gross margin for products, which was approximately 38%.
Another key factor for Apple’s success is its ability to grow revenues with a brand that increases customer loyalty and supports premium pricing. Anyone who has bought an iPhone knows how expensive they are.
But it’s not just premium pricing. Over time, Apple has been able to make more profit from each sale it makes. In 2014, Apple’s gross margin was 38.6%. In 2023, it was 44.3%. Improvement in the gross margin has propelled Apple’s net income, which has grown, on average, 10.5% annually since 2014 and stood at $97 billion in 2023.
While net income has grown at 10% annually, the earnings per share between 2014 and 2023 has grown at an average annual rate of 16%. Earnings per share have accelerated faster than net income because Apple aggressively buys back its stock, reducing its share count from 23.5 billion shares in 2014 to 15.5 billion shares in 2023.
In 2023 alone, Apple repurchased $76.6 billion of its own shares, with about $74 billion remaining under its current buyback program auguring for continued share repurchases.
Overall, Apple’s phenomenal nearly 170,000% increase in share price since its initial public offering (IPO) is the result of its relentless innovation, strategic expansion into services, well-earned premium pricing, and consistent revenue growth.
As Apple continues to innovate and explore new technologies, its growth story remains compelling and the story about Apple’s return to shareholders has not yet been fully told.
Note: This content first appeared in Louis Navellier’s latest book, The Sacred Truths of Investing: Finding Growth Stocks that Will Make You Rich, which was published by John Wiley & Sons, Inc.