A Look At What's In Store For Apple (AAPL) In 2020

Apple (AAPL) is the world’s first trillion-dollar company and the most valuable brand. While Apple is primarily known for its iPhone, a closer look reveals that it's built on more than just hardware. Apple is loved by its customers owing to the value it adds to their day-to-day lives. Apple’s strength lies in its ecosystem built on innovative products and services, superior customer experience and strong customer loyalty.

Here’s a look at Apple as we move into 2020.

Services

To limit its dependence on hardware, Apple has worked on its services segment in recent years. Results have followed. During fiscal 2019, Apple earned $46.29 billion from services, which constituted 17.79% of its net sales compared to 14.96% in 2018. Apple is well on its way to accomplishing its goal of doubling its fiscal year 2016 services revenue during 2020. The company registered new all-time highs for its services, including the App Store, AppleCare, Music, cloud services and App Store search ad business during fiscal 2019. There is a rise in the profitability of this segment as well; the profit margin stood at 63.7% in fiscal 2019 versus 55% and 60.8% in fiscal 2017 and 2018, respectively.

Apple’s services segment has witnessed an increase in customer engagement, which has led to more subscriptions to its digital content stores. Apple now has 450 million paid subscriptions across services compared to around 330 million a year back. It is steadily moving towards its goal of surpassing the 500 million mark in 2020. In addition, Apple has more than 35,000 subscription apps on its platform, with the largest accounting for less than 0.25% of total services revenue, signifying low concentration on any one particular app. According to App Annie’s latest report, iOS grew its lead in consumer spend over Google Play to 95% in Q3 2019.

Within services, Apple Pay adds a new dimension to its offerings. During the last fiscal, the revenue and transactions more than doubled for Apple Pay; it is live in 49 markets around the world with over 6,000 issuers on the platform. eMarketer estimates that U.S. proximity mobile payment transactions which totaled to $98.88 billion in 2019 will reach $161.41 billion by 2021. It highlights that Apple Pay captures the largest share of the U.S. proximity mobile payment market and is thus driving much of the growth in this space.

Wearables

The revenue from wearables, home and accessories segment was $24.48 billion during fiscal 2019, constituting 9.4% of net sales over 6.5% in fiscal 2018. The company's wearables and accessories business, which includes Apple Watch, AirPods, and the HomePod smart speaker, is getting close to overtaking the revenue earned from Mac. This means that wearables could soon be Apple’s third largest business category overall after its smartphone and services segments. During the year 2019, Apple unveiled the Apple Watch Series 5 and AirPods Pro. The devices comes with great utility features; Apple Watch (Series 4 and later) automatically place an emergency call if the Apple Watch senses that “the user has taken a hard fall and remains motionless for about a minute” while the AirPods Pro come with features such as active noise cancellation.

Apple Watch currently maintains the first position with 48% global smartwatch market share, followed by Samsung at second and Fitbit (now acquired by Google) at third spot, according to Strategy Analytics. During the earnings call in October, Tim Cook, CEO of Apple, said that “three out of four customers buying an Apple Watch currently or last quarter I should say were buying an Apple Watch for the first time.” The smartwatch market is growing at a fast pace and is expected to reach a market value of $130.55 billion by 2024 from $48.14 billion in 2018, registering a CAGR of 18.23% during the forecast period (2019-2024). 

Healthcare

Apple has been investing in advanced technologies to penetrate deeper into the fitness and health space via its products and services. Apple’s focus on wellness and health was made evident by Cook in an interview where he said, “If you zoom out into the future, and you look back, and you ask the question: ‘What was Apple's greatest contribution to mankind?’, it will be about health.” Apple enables customers to take an electrocardiogram (ECG) right from their wrist and is working on earlier detection of AFib, improved diagnosis and patient outcomes. Apple is integrating aggregated health records for veterans receiving care through the Veterans Health Administration directly in the Health app. “We're deepening Apple's commitment to medical research. We are collaborating with leading health institutions to reach more participants than has ever been possible enabling them to contribute to potential medical discoveries and help create the next generation of innovative health products,” as per Cook.

Last year, Morgan Stanley projected that healthcare could bring in over $15 billion for Apple by 2021 and up to $313 billion by 2027. "At the mid-point, Apple’s health efforts could result in ~$90B of annual revenue by 2027, roughly ~35% of its current revenue base.”

Final Word

Apple has repeatedly said, “Our objective is to make great products and services that enrich people's lives and to provide an unparalleled customer experience so that our users are highly satisfied, loyal, and engaged. As we accomplish these objectives, strong financial results follow.” Apple continues to move ahead with this objective which has proved right over the years and should continue to do so.

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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