VALUATION HIGHLIGHTS

1. iPhone constitutes 42% of the Trefis price estimate for Apple's stock.
2. Services constitute 34% of the Trefis price estimate for Apple's stock.
3. Apple Watch,TV&Accessories constitute 10% of the Trefis price estimate for Apple's stock.

WHAT HAS CHANGED?

Apple's Q4 FY'24 earnings

Apple posted a better-than-expected set of Q4 FY'24 results. Revenue rose 6% year-over-year to $94.9 billion, while quarterly diluted earnings stood at $0.97. Growth was driven primarily by higher iPhone sales and a stronger uptake of the company's digital services.

Note: Apple's Q4 FY'24 ended on September 28, 2024

Launch of iPhone 16

Apple released its new iPhone 16 devices at a special event in September. The lineup offers relatively incremental improvements over last year’s models—primarily camera and processor upgrades. The iPhone Pro models feature slightly larger screens, but the real focus this cycle is on Apple Intelligence software updates. These updates, which include enhanced Siri capabilities, new writing assistance tools, and AI-powered image generation, are expected to roll out gradually over the next few quarters.

Vision Pro headset

Apple launched its mixed-reality headset the Vision Pro in early 2024. The device starts at $3,499 and combines virtual reality - used for games and experiences - with augmented reality, which overlays digital information in the real world using cameras. Although the use cases of the device beyond content consumption remain somewhat unclear at the moment, Apple does have a knack for working with developers and building a software ecosystem around its products.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Apple's value that present opportunities for upside or downside to the current Trefis price estimate for Apple:

iPhone revenues And margins post improvements

• iPhone Revenue and Gross Margin:
  We estimate that Apple's iPhone revenues will improve from $ 209 billion in FY'24 to around $245 billion by FY'31. However, if the company can improve its iPhone revenues to around $260 billion by the end of our review period, with gross margins rising to about 50% from our current forecast of 48%, there could be an upside of about 10% to our price estimate.

For additional details, select a driver above, or a division from the interactive Trefis split for Apple at the top of the page.

BUSINESS SUMMARY

Apple makes money primarily by selling mobile phones, computers, and tablets to consumers worldwide. Apple's well-known consumer products include the iPhone, Mac, iPad, and Apple Watch. In addition to selling hardware, Apple makes money from services that include the App Store, Apple Music, and iCloud.

SOURCES OF VALUE

We believe the iPhone segment is more valuable than the Mac and iPad segments due to the following:

Large mobile phone market

The smartphone market is significantly larger than the tablet market, and margins in the smartphone business are also likely to be higher. About 1.14 billion smartphones were shipped globally in 2023, per Canalys.

KEY TRENDS

Mac Gains Traction

Apple's Mac computers have gained market share due to their superior product differentiation, proprietary Mac OS software and applications, new M-Series processors, and premium build quality. Apple has also been benefiting from the fact that it plays in the high end of the PC market typically focusing on the lucrative $1,000+ price points rather than the commoditized low and mid-range where a bulk of the volumes come from. Over FY'22, Mac Revenues reached an all-time high of $40 billion, although it declined to about $30 billion in FY'23 and remained roughly flat in FY'24 as the Covid-19 related boom eased.

Services Present A Growth Opportunity

Apple's Services business has grown by over 16% each year between FY'19 and FY'23, eclipsing the iPad and Mac to become the company's second-largest business segment with revenues of about $85 billion in FY'23. While the App Store remains the primary driver of growth, services such as Apple Music and Apple TV+ are also gaining traction. Apple's base of paid subscriptions on its platform has also been rising steadily, with over 1 billion active subscriptions as of mid 2024.