What’s powering Apple’s $2T valuation, and where it’s headed next

The keys to Apple’s $2T market cap: product strategy and ecosystem.


August 24, 2020

On July 1, one of the world’s top Apple analysts, Neil Cybart, wrote an article titled “Apple is pulling away from the competition.”

Since then, Apple has gained $500B+ in market cap and — on the road to becoming the world’s first $2T company — smoked its Big Tech frenemies. 

Apple has built its advantage for years

Each of its new products is designed to handle tasks once managed by sibling devices — and in “an increasingly personal way,” Cybart told us yesterday.

Computing tasks are moving from the Mac to the iPhone to the Apple Watch — while all of Apple’s products work seamlessly together (except the charger cables).

In comparison, Apple’s top tech competitors are all over the place:

  • Samsung is aimlessly launching products just to be “first” (i.e., foldable screens)
  • Amazon bet big on the Echo instead of wearables
  • Microsoft’s Surface has failed to break through with consumers
iPhone sales are slowing but other products are picking up the slack

Apple has built a sticky ecosystem around its flagship product with services and non-iPhone revenues accelerating in recent quarters.

Cybart estimates that of Apple customers, 50% own only one product (iPhone). Once these people go deeper into the ecosystem, watch out. 

Expect millions of users to add additional items like the AirPods, Watch, subscription or — as Cybart predicts — a face wearable in the years to come. 

The biggest risk to Apple? 

To be sure, Apple has significant supply chain and business exposure to China (~17% — or $40B+ of its 2019 revenue) as well as antitrust concerns (e.g., Epic Games).

However, Cybart tells us the biggest risk to the Cupertino giant is a lack of focus.

Customers are embracing Apple’s current strategy, he says — but “if you see Apple stretch itself into areas where it doesn’t have the same user experience, that could start the gradual unwind of its ecosystem gains.”

***

UPDATE (08/24/2020 @ 12PM PST): Here are my full notes on what Cybart says is Apple’s key risk factor:

  • China & antitrust are ‘headline’ risks: “People are nervous about the effects of these risks but when you look at the actual revenue impact, it’s a low percentage.”
  • The biggest risk for Apple is losing focus: “If you see them doing a whole lot more and stretch themselves into areas where they won’t have the [same quality of] experience, it could unwind ecosystem gains.”
  • Culture is key: “Apple’s ability to focus is based on its culture. If new products have a weaker experience, people may say ‘maybe I don’t want this [new] device’ and you’ll see a slow unraveling.”
  • All-in on personal tech: “Apple has made a very concentrated bet: technology is becoming increasingly personal. Its product line is extremely focused. So far, the wearables bet has paid off. But, if it didn’t, there weren’t many other options.”

***

And you can check out an in-depth Tweetstorm analysis here:

https://twitter.com/TrungTPhan/status/1297292087721779201?s=20

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