Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Apple in 5 Charts

By Jeremy Bowman - Sep 22, 2018 at 10:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Following the latest iPhone launch, a look at the company's numbers sheds light on its pricing strategy.

By most conventional definitions, Apple ( AAPL 2.15% ) is the most successful company in the world. It's worth more than any other publicly traded company, with a market value near $1.1 trillion, and it's the most profitable, bringing in $56 billion in net income in its last four quarters.

Apple is making headlines once again after releasing the latest versions of its flagship smartphone, the iPhone, including the iPhone XS, XS Max, and XR; the stock recently topped the $1 trillion mark and is pushing record highs. As investors consider the stock's potential with those two milestones behind it, now is an excellent time to dig into the numbers, to better understand how Apple's business works and where it's headed today.

The new iPhone XS

The new iPhone XS. Image source: Apple.

The iPhone company

Though Apple makes several other popular devices in addition to its trademark smartphone, including the iPad, Mac, Apple Watch, and others, the iPhone continues to drive the majority of its business as it has for the past several years. As you can see from the charts below, the iPhone has contributed about 62% of Apple's revenue over the last four quarters:

A pie chart with Apple's revenue by category

Data source: Apple financial reports. Chart by author.  TTM = trailing-12-month.

Of the company's $255.3 billion in revenue during that time, $158.3 billion has come from the iPhone, which dwarfs revenue in other categories:

A bar chart with Apple's revenue by category

Data source: Apple financial reports. Chart by author. 

It's clear from those two charts, then, that Apple's fortunes will largely be determined by the success of the iPhone. However, there's a key problem with that dependency: The smartphone market has matured, and sales in the category have even begun declining for the first time ever. Consumers are delaying upgrades, as new iterations of phones become more similar to old ones. In the fourth quarter of 2017, global smartphone sales declined by 5.6% to 408 million, and have plateaued at about 1.5 billion for the year.

Apple has not been able to escape this trend -- iPhone sales have been relatively flat for some time:

A bar chart of iPhone unit sales

Data source: Apple financial reports. Chart by author. 

As you can see, iPhone unit sales peaked in fiscal 2015 when the company introduced the large-screen iPhone 6, before falling by 8% the following year. Since then, unit sales have recovered modestly, but they may never return to the heights seem in 2015. Apple, aware of this problem, has only one way to keep growing iPhone sales: to charge more money per phone.

Thanks to the success of the iPhone X, average iPhone selling prices have jumped this year after lagging previously:

A bar chart of iPhone Average Selling Price in Dollars

Data source: Apple financial reports. Chart by author. 

Average iPhone selling prices jumped to $758 thanks to the $1,000 iPhone X. Apple is hoping to pull the same trick once again with its new lineup of iPhones, which top out at $1,100 for the iPhone XS Max with 64 gigabytes or $1,449 with 512 GB. However, the company will only be able to raise iPhone prices for so long, as it will eventually reach a ceiling in demand.

Apple's services segment, made up of offerings like the App Store, Apple Music, and Apple Pay, has been growing quickly; services revenue is up 31% in the most recent quarter. But the growth of that high-margin category has not been enough to make up for rising input costs, as gross margin is down from a recent peak in 2015:

AAPL Gross Profit Margin (TTM) Chart

AAPL Gross Profit Margin (TTM) data by YCharts.

Apple now finds itself again at a turning point. It's not enough for the company to rely on growth from Services or its Other Products segment, which includes devices like the Apple Watch, Apple TV, and AirPods, as sales in those categories are still just a fraction of iPhone sales. The company either needs to find another blockbuster product category that can add meaningful growth to an already enormous business, or it needs to find more ways to squeeze money out of a mature iPhone market, likely by raising prices.

It won't be easy, but the early signs for Apple investors are positive. Some of the new iPhone XS model pre-orders are already selling out. However, we won't know much about actual sales for several months -- not until the company reports first-quarter earnings in January.

Still, based on the latest iPhone pricing and the challenges above, Apple's strategy with the new high-priced iPhone is abundantly clear.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$165.32 (2.15%) $3.48

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.