Slowing down where it hurts the most
Apple, known as the world’s biggest company by market capitalization and one of the most profitable corporations, may face challenges ahead. Despite being behind the most popular smartphone globally and having a loyal customer base, the company’s highest-growth days seem to be behind it.
A visual representation of Apple’s historical iPhone revenue and deliveries reveals stagnant sales even before the COVID-19 pandemic hit in 2020. The pandemic-induced surge in purchases was temporary, and both iPhone revenue and deliveries are now declining. Considering that the iPhone still accounts for around half of Apple’s revenue, this decline is significant. Apple’s other product demand has also been lackluster.
One reason for this stagnation could be market saturation, as people are holding onto their Apple devices for longer. However, market analysts predict the release of the iPhone 16 next year could stimulate a wave of upgrade purchases. Yet, such upgrade cycles have not been game-changers for Apple, and the company’s long-term revenue trend remains mostly stagnant.
Services to the rescue … somewhat
While product-revenue growth is slowing down, Apple’s services revenue, primarily from sales of apps and digital content, continues to grow. This segment is Apple’s second-largest business in terms of revenue and highly profitable. Roughly one-third of Apple’s gross profits come from services.
Despite a temporary lull last year, Apple’s digital content business continues to grow, reaching a record-breaking $22.3 billion in revenue during the three months ending in September. The growth potential for Apple’s services business remains uncertain, as there is a limit to how much digital content users are willing to pay for. With over 2 billion iOS users spending an average of $44 per year on services, it’s challenging to envision significant future growth in this area.
Connecting the dots
While the future remains uncertain, analysts have insights into Apple’s two primary businesses—the iPhone and services. It is conceivable that the iPhone arm may not grow significantly in the next five years, while the services arm could become a $100 billion per year business by 2028. However, surpassing that milestone seems unlikely.
Sales of Apple’s other products, such as iPads and Macs, may see modest growth, although recent lackluster results make this expectation questionable. Overall, Apple’s top line revenue in 2028 could potentially be less than $500 billion, which is a growth rate that falls short of the company’s typical performance.
Despite the growth challenges, the stock price tends to align with Apple’s growth. Therefore, current and prospective Apple investors may see positive stock performance in the future, even if the company’s growth rate is subdued.