- The Apple stock price surpassed $409 in after-hours trading after record revenues in the tablet and services markets.
- The firm’s strong presence in China and newfound demand for the Mac strengthens the company’s position for further growth.
- The company has successfully diversified out of the slowing smartphone market, targeting services and wearables.
Apple (NASDAQ:AAPL) saw record-high iPad and services revenues in China, recording a revenue of $9.33 billion in Q3. Strategists expected the tech giant to hit a market capitalization of $2 trillion even before the earnings report. The new earnings further strengthen the prediction.
The Apple stock surged by 6.44% in after-hours trading, bringing it to $409.55. The market cap of the company now hovers at around $1.8 trillion.
The growing iPad and services revenues of Apple are critical for the firm’s long-term growth for three reasons.
First, it offsets the plateauing growth of the smartphone industry. Second, it shows Apple’s strong presence in a key market in China. Lastly, it positions the firm for additional growth outside of its core business.
#1: Offsetting Slowing Smartphone Industry Growth
Since early 2019, various data points have pointed towards a slowdown in the smartphone market.
Smartphones have become more resilient in terms of hardware and software. Users have fewer compelling reasons to switch their phones than before.
Gartner analyst Roberta Cozza also said that phones are too expensive. A top-end Apple or Samsung flagship model could cost upwards of $1,000. The mid-tier smartphone market has models at half the price of $1,000.
She said:
Phones cost over $1,000 now. That is a lot of money for what the user perceives as not new enough. Consumers don’t see why they should upgrade anymore.
The increasing tablet and service revenues could position Apple to protect the company from the threat of declining smartphone demand.
#2: Apple Performing Well in China
There is one common theme among companies that have seen explosive performances in 2020: targeting the Chinese market.
Tesla’s Shanghai Gigafactory and its sales in the Chinese market led the carmaker to exceed analyst expectations.
Similarly, the U.S. stock market is seemingly reacting positively to Apple’s better-than-expected performance in China.
Tim Cook, the CEO of Apple, emphasized during the earnings call that the Mac has seen newfound demand in China.
We also continue to see extremely high new customer rates on Mac and iPad there. To give you a perspective, about three out of four customers that are buying the Mac are new in China, and about two out of three that are buying the iPad are new. And so these are numbers that we’re super proud of.
#3: A Diversified Business
While the smartphone business remains the core venture of Apple, it is rapidly growing across various industries.
In the latter half of 2019, Apple saw a noticeable expansion in the wearables industry.
The popularity of the AirPod series pushed the dominance of Apple over the wearables sector to 35%.
In 2020, the company has managed to see record growth in the services market. Cook said:
Apple’s record June quarter was driven by double-digit growth in both Products and Services and growth in each of our geographic segments.
The firm’s declining smartphone dependence and its growing presence in key industries could be a catalyst to raise investor confidence.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.