Narratives are currently in beta
Key Takeaways
- Apple's strategic market penetration and innovative product expansions drive potential revenue and margin growth in key global markets.
- Expanding services and sustainability initiatives enhance revenue opportunities, leveraging Apple's ecosystem for greater long-term profitability.
- Economic and competitive pressures threaten Apple's revenue growth through increased R&D spending, pricing strategy, and potential supply chain disruptions.
Catalysts
About Apple- Designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide.
- Apple's growth in India, alongside strong performances in markets like Saudi Arabia, the UAE, and Europe, indicates potential for significant future revenue increases as they deepen penetration in these rapidly expanding markets.
- The launch and anticipated expansion of Apple Intelligence across devices suggests potential for driving upgrades and increasing services engagement, which are likely to boost both revenue and net margins due to the recurring nature of services.
- Continued innovation and expansion in Apple's product lineup, including the Apple Vision Pro and advancements in AI-driven features, can enhance customer loyalty and attract new users, influencing revenue growth and customer lifetime value.
- Expanding services such as Apple Pay and Apple TV+, along with new features in health directly integrated with products like AirPods and Apple Watch, indicate an increase in services revenue, leveraging Apple's growing ecosystem for higher margin gains.
- Strategic product launches and feature expansions such as carbon neutral Macs and enhanced subscription services are likely to drive sustainable earnings growth, assisted by continued shareholder returns through substantial buybacks and dividends.
Apple Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Apple's revenue will grow by 7.0% annually over the next 3 years.
- Analysts assume that profit margins will increase from 24.0% today to 27.7% in 3 years time.
- Analysts expect earnings to reach $132.6 billion (and earnings per share of $9.17) by about December 2027, up from $93.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $146.7 billion in earnings, and the most bearish expecting $109.9 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.0x on those 2027 earnings, down from 39.7x today. This future PE is greater than the current PE for the US Tech industry at 21.7x.
- Analysts expect the number of shares outstanding to decline by 1.46% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 7.35%, as per the Simply Wall St company report.
Apple Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Apple's services segment, though experiencing growth, faces competition in areas like Music, News, and Fitness, which may not be market-leading, possibly impacting future revenue growth and market share.
- The Wearables, Home, and Accessories segment experienced a revenue decline of 3% year-over-year, indicating potential challenges in maintaining consumer interest and revenue in these product categories.
- While Apple's installed base is growing, overreliance on premium product pricing without significant price adjustments in response to competitive pressures or economic conditions could affect volume sales and revenue growth.
- Economic uncertainty, geopolitical tensions, or policy changes regarding tariffs, especially related to China, could impact Apple's supply chain, manufacturing costs, and ultimately, its gross margins and earnings.
- The rollout of Apple Intelligence features and associated AI investments may require increased R&D spending over time, potentially putting pressure on net margins if the resulting sales growth does not offset these expenses.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $244.48 for Apple based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $300.0, and the most bearish reporting a price target of just $184.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $478.8 billion, earnings will come to $132.6 billion, and it would be trading on a PE ratio of 33.0x, assuming you use a discount rate of 7.4%.
- Given the current share price of $246.49, the analyst's price target of $244.48 is 0.8% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Read more narratives
Apple
BA
Equity Analyst
EU Regulations And Poor Emerging Market Strategy Will Erode Margins And Limit Sales Growth
Key Takeaways Over-reliance on new market penetration could prove to be unfruitful, while the world continues to grapple with cost-of-living pressures. Poor emerging market strategy could lead to failure in India and South America due to prohibitive costs.
View narrativeUS$207.71
FV
19.5% overvalued intrinsic discount6.39%
Revenue growth p.a.
74users have liked this narrative
0users have commented on this narrative
14users have followed this narrative
25 days ago author updated this narrative
Apple
MI
Content Lead
Broadening Its Value Chain Into Software & Silicon Will Increase Margins
Key Takeaways Apple will dominate thanks to brand, installed user base, and ecosystem of products More revenue from Services will increase gross and net margins Apple Silicon is paving the way for it to gain market share in the PC space More parts being developed in-house should increase product margins Biggest risks are manufacturing challenges and reliance on emerging markets growth (India) Catalysts Apple’s Brand leads to sticky revenues and increasing installed device base Apple has become more than a tech hardware and software company, it has become a lifestyle product. It has embedded itself into the lives of billions of people around the world, many of whom say they couldn’t live without their iPhone.
View narrativeUS$166.02
FV
49.5% overvalued intrinsic discount5.50%
Revenue growth p.a.
67users have liked this narrative
0users have commented on this narrative
9users have followed this narrative
3 months ago author updated this narrative