Shares of Apple (AAPL 2.52%) have beaten the broader stock market handsomely over the past decade, gaining 653% thanks to the stupendous success of the company's various product lines and the growth of its services business.
The iPhone, however, has been the cornerstone of Apple's terrific growth. The company sold nearly $192 billion worth of iPhones in fiscal 2021, which was 53% of its total sales. What's more, Apple's iPhone revenue increased by 39% last fiscal year and outpaced its overall revenue growth of 33%. The company has been benefiting big time from the growing adoption of 5G smartphones, recording solid growth in volumes and average prices -- a trend that's here to stay, and should help Apple sustain its terrific growth.
Let's see why that may be the case.
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Higher smartphone spending in the 5G era is a boon for Apple
Counterpoint Research estimates that the global average selling price (ASP) of smartphones increased 12% in 2021 to $322, driven by an increase in sales of 5G smartphones that carry a higher price tag than 4G devices. The higher ASP has played in Apple's favor.
Sales of premium smartphones that carry an ASP of more than $400 increased 24% last year and accounted for 27% of overall smartphone shipments. Apple was the biggest beneficiary of the growth in premium smartphones as it captured 60% of this market in 2021. As it turns out, Apple dominated smartphone sales charts across the globe, ranging from North America to China, India, and the Middle East and Africa.
The company captured 44% of the global smartphone revenue of $448 billion thanks to the robust demand for its 5G-capable iPhone 12 and iPhone 13. What's more, iPhone ASP increased 14% last year to a whopping $825, outpacing the overall growth in smartphone ASPs in 2021.
In simpler words, the higher smartphone ASP in the 5G era is helping Apple attract more consumers into its fold, which bodes well for the future as there is still a lot of room for 5G smartphone penetration to increase. That's because 5G models accounted for 40% of overall smartphone shipments last year compared to 18% in 2020. Stronger 5G adoption should increase Apple's addressable opportunity and give iPhone sales a big boost in the long run. Let's see how.
Stronger iPhone revenue is in the cards
Strategy Analytics estimates that Apple shipped 228.4 million iPhones last year, 84% of which were 5G-enabled. That translates into 192 million 5G iPhone shipments, giving Apple a 31.1% share of the overall 5G smartphone market.
NASDAQ: AAPL
Key Data Points
By 2025, 5G smartphones are expected to account for 69% of overall smartphone shipments of 1.54 billion units. That would translate into annual 5G smartphone shipments of 1 billion units in 2025. If Apple continues to hold on to its current share of the 5G smartphone market by then, its annual 5G iPhone shipments could easily exceed 300 million units -- over 50% higher than last year.
However, it wouldn't be surprising to see Apple increase its 5G smartphone market share thanks to the new iPhone SE, which is expected to bring more customers into the company's fold. But even if Apple sells 300 million 5G smartphones in 2025 at an average selling price of $800 (which is the price of the standard iPhone 13 model), its iPhone revenue could increase to $240 billion in three years. That would be 25% higher than fiscal 2021's iPhone revenue.
Additionally, investors shouldn't forget that an increase in the iPhone's installed base would also give the high-margin services business a shot in the arm. All this explains why Apple's earnings are expected to clock 15% annual growth for the next five years, compared to just 8% annual growth over the last five. But it wouldn't be surprising to see the tech giant do better thanks to its pricing power in the 5G smartphone market and the growth of the services business, which makes the stock worth buying right now -- its price-to-earnings ratio of 28 represents a discount to the Nasdaq-100's multiple of 33.5.
