Apple at $ 2 trillion leaves no room for error


Apple Inc. will be a $ 2 trillion company very soon. The irony is that it shows how much he can afford to lose.
At Tuesday’s close, Apple’s stock price was about 1% below the level needed to break a market cap of $ 2 trillion. Apple has experienced strong growth: the title has recorded an average weekly gain of 3.5% since the beginning of June, according to FactSet. Its activity has proved surprisingly resistant to the pandemic. The company still generates more than 80% of its revenue by selling high-priced devices made almost entirely in China, where the outbreak first occurred. Combined revenue from all of these devices grew 10% year-over-year in Apple’s last fiscal quarter ended June 27. The stock has jumped 20% since those results were released on July 30.
But Apple now also faces an unprecedented challenge for its App Store business, putting it in the crosshairs of lawmakers and regulators on both sides of the Atlantic. The matter has escalated significantly over the past few days, as Epic Games sued Apple and Google in federal court after the two companies pulled its popular ‘Fortnite’ video game from their app markets as Epic was trying to shut down their respective payment systems. In a new twist on Monday, Epic filed for a restraining order against Apple to prevent the game’s deletion and to prevent Apple from ejecting Epic from its development program.
Since its launch in 2008, the App Store has become a crucial business for Apple. Based on regulatory filings, the App Store has been the primary contributor to growth in Apple’s service segment in three of the past four fiscal years. The services segment is now Apple’s second largest segment after the iPhone – and the one that has seen the most steady growth over the past four years as the smartphone business has matured. Gross service margins are also critical to Apple’s overall business model, being 34 percentage points higher than the company’s gross product margins for the nine-month period ended June 27.
The ultimate outcome of the Epic lawsuit and regulatory polls is impossible to predict. But at $ 2 trillion, the market rates Apple as if nothing could go wrong. At this level, the stock is trading at more than 32 times expected earnings – or 31 times excluding $ 81 billion in net cash on the company’s balance sheet. This is its highest multiple in more than a decade. It’s also about double the multiple of the shares earned when Apple’s market value first crossed the $ 1 trillion mark in August 2018.

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