Late last year, the combination of cooling smartphone sales worldwide and the trade war with China threatened to derail a multiyear run by Apple (AAPL +3.26%). The smartphone maker lost more than one-third of its value to close out 2018, falling from all-time highs just months before.
A number of factors showed the company's resilience in 2019, sending the stock up 78% this year, easily topping the 29% gains of the S&P 500 (^GSPC +0.29%). 2020 is also shaping up to be a banner year for Apple, as some of the contributors to this year's performance are poised to lift the company to even greater heights.
Here are three things that will drive Apple higher in the coming year.
Image source: Apple.
1. The coming of 5G
The fifth generation of mobile communications technology, also known as 5G, is slowly being introduced around the world, and it will likely revolutionize the smartphone industry, promising significantly faster data transmission. Forecasts vary widely, but speeds are predicted to be anywhere between 10 times and 200 times faster than what's currently available.
While some smartphone makers have dived headlong into 5G, Apple has taken a more measured approach, waiting until the technology is widely available before introducing a 5G-capable iPhone. Piper Jaffrey analyst Michael Olson recently surveyed more than 1,000 U.S. iPhone users and found that 23% plan to upgrade to a 5G iPhone when it becomes available -- even if it costs $1,200. With an estimated 100 million iPhones in use in the U.S., that's a lot of potential sales, with an even greater opportunity worldwide.
2. Wider adoption of wearables
Apple has already made an indelible mark in the wearables space, and the company is positioned to continue. The Apple Watch dominates the global smartwatch market, accounting for nearly half of all smartwatch sales. In the third quarter of 2019, its market share increased to 48%, up from 45% in the second quarter -- more than three times that of second-place competitor Samsung with just 13%. The company also made a splash with its wireless AirPods, which are also market leaders, accounting for 45% of all earbuds sold. Add in sales of Apple's Beats products, and that brings its total share above 50%.
Expect the company's market leadership to continue in 2020. Apple recently released the AirPods Pro, featuring noise-canceling capabilities and the ability for users to toggle back and forth between noise-canceling and "transparency" mode, which allows the wearer to hear sounds around them. The devices also supports hands-free Siri operation. AirPods Pro have been largely sold out heading into the holiday season, experiencing brisk sales since they were released in late October. A recent Piper Jaffray survey found that Apple is the "top-listed consumer brand for teens," and AirPods were at the top of their holiday wish lists.
Evercore ISI analyst Amit Daryanani estimates that there are about 75 million Apple Watches and 50 million AirPods that are currently in use, a far cry from the installed base of about 1 billion iPhones. This gives Apple a fertile field to harvest for future sales.
AirPods are the must-have gift of the holidays. Image source: Apple.
3. Further expansion of services
Much ink has been spilled about Apple CEO Tim Cook's pronouncement in early 2017 that the tech giant planned to double its services revenue by 2021. At the time, Apple's trailing-12-month (TTM) services revenue topped out at $25.46 billion. The company's goal of $51 billion in services revenue is currently within reach. As of the third quarter, Apple's TTM service revenue had grown to $46.29 billion, meaning the company might actually reach (and pass) its goal a year earlier than anticipated.
It's important to remember that services is the gift that keeps on giving for Apple, as many of them fall under the broad heading of subscription services. Apple Music, iCloud, and AppleCare all fall into the category, as do Apple Arcade, Apple News+, and Apple TV+. These recurring sales not only provide Apple with an additional revenue source, but they also give the company a steady stream of reliable income that investors can count on -- making the company less dependent on the next iPhone upgrade cycle.
While Apple TV+ has been widely viewed as a bust, Apple isn't throwing in the towel. The company is exploring additional ways to attract viewers, and it has reportedly considered deals to bring the James Bond franchise and Pac-12 college sports to its offering, according to a report in The Wall Street Journal (paywall link). Apple will continue to build out its streaming service over the coming years and will eventually amass a library of content sufficient to attract a broad swath of viewers.
With several robust opportunities yet to fully explore, Apple still has plenty of gas in the tank to drive the company higher in 2020.
