Apple and Netflix Dominated the Last Decade: Are the Good Times Over?

Apple shares have risen over 36-fold since 2004. Netflix shows up in the Top Ten too.

Apr 9, 2014 at 9:00PM

One of the highest flying stocks in the S&P 500 over the last decade, ranking fourth in returns among the largest companies, is that of Apple (NASDAQ:AAPL). Sales of iPhones and iPads have driven the share price up over 3,600%. This comes in spite of a 25% drop since September 2012 which resulted from concerns over slowing growth and reduced margins. 

Tenth on the same list is the stock of Netflix (NASDAQ:NFLX) with more than an 800% increase. The company completely disrupted the video rental industry, knocking out the concept of the traditional brick-and-mortar store and replacing it with mailings and streaming services.

Do these two companies have further upside?

AAPL Chart

AAPL data by YCharts

Success factors
Much of Apple's success, both as a company and as a stock, traces back to June 2007. That's when the company released the first-generation iPhone. Since then Apple has sold over 470 million of the devices.

Today the iPhone generates more than half of the company's revenue and probably a significant portion of its profit. 

The other big driver has been the iPad, which the company released in April 2010. Around 20% of Apple's revenue now derives from this tablet device. The company has sold close to 200 million of these devices.

Both devices have also contributed toward growth in other portions of the entire Apple ecosystem by creating a hardware platform for iTunes and apps. 

Netflix has guessed right and it benefits as consumers access content over the Internet instead of choosing traditional delivery via cable, which has resulted from a demographic shift and the proliferation of smartphones and tablets.

Future prospects
Apple might have some more room to grow, especially in emerging markets and China. However, the company probably needs another game changing product along the lines of the iPhone and iPad in order to duplicate the phenomenal success it has had in the past ten years. 

Rumors say that the company has a few things up its sleeve. A smart watch, some sort of agreement with cable companies which will allow the company to profit off the TV space (or a TV device of its own), and a retail store payment platform that uses the iPhone or smart watch receive the most frequent mentions among technology analysts. Whatever Apple decides to offer it will probably have to be a blockbuster, something people didn't know that they needed or wanted. If it happens, jump on the stock.

Even without a new product Apple will still plod along its present path, enhancing products every year and returning value to shareholders in the forms of dividend increases and share buybacks. Investors could benefit even if Apple becomes a rule maker instead of a rule breaker.

Netflix's business model certainly addresses the projected demographic and growth trends, both domestically and internationally. In addition to video rentals the company is branching out into original programming as well which could be another positive.

Whether or not investors continue to flock to the stock might depend upon its valuation. With a P/E ratio approaching 200 there is always the chance that some shareholders will stay away even if revenues continue to move up at double-digit rates. However, if Netflix can boost its profits like it has over the past year it might continue on the upswing for some time to come.

Foolish conclusion
Two consumer-oriented tech companies, Apple and Netflix, were among the top-ten large-company stock gainers over the last ten years.

If Apple wants to show up on the same list in 2024 the company probably needs to release another blockbuster product (or service) that rivals the success of the iPhone and iPad. Even if that does not happen investors can still prosper if Apple continues on its current course of updating its great products each year and returning lots of cash to shareholders via dividends and buybacks.

Netflix appears to be in the right position with the right product and it is a solidly run company. However, its high valuation might scare away some investors. It may not show up in the top ten list ten years from now unless its profits increase.

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Mark Morelli owns shares of Apple. The Motley Fool recommends Apple and Netflix. The Motley Fool owns shares of Apple and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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