We live in the GAFA world today. Google Apple Facebook and Amazon has become a household name today.
So the question arises from an investment standpoint about Apple. Does Apple have a moat and a sustainable growth driver to make an investment?
The answer lies below after studying some facts and trends:
i) Apple has a market cap of $ 745 billion
ii) Cash on books of $ 178 billion
iii) Net profit in previous quarter of $ 18 billion
Core products of Apple are I-phone, I-pad, I-pod and I-mac. It also has services business which is under 10 % of total revenue.
So what is Apple betting on for its sustainable growth and market share?
Apple believes that it will be able to continue scaling higher volumes in its upgrade cycle and will be able to retain its sweet deals with Telecon companies such as AT & T.
However, Apple’s market share is not very encouraging in Europe and parts of South east asia. There is competition from other phone manufacturers such as Motorola, HTC, Samsung and Chowmi (Chinese co). These devices are typically available for 1/3rd the cost of Apple I-phone and is gaining significant market share in emerging economies.
With applications being uniform across different phone manufacturers, such as Whatsapp, BBM, Viber and e-mail access, Apple i-phone will not be very coveted as before.
So the bottom-line. Can Apple continue to attract customers to upgrade to new versions of their devices and can they drive away competition in emerging markets? If the answer is yes, then Apple may be a compelling case but the answer to this is not yet satisfactory.
In conclusion, Apple is great company but it is not showing signs of deploying its cash reserves for innovation and diversification into new viable businesses’. Therefore it is a wait and watch mode business from point of view of investment in portfolio.