Some investors who missed out on buying Apple (AAPL -1.22%) stock in 2010 may be kicking themselves. For the lucky bunch who invested $1,000 in Apple stock twelve years ago, their investment would be worth $18,400 today. That's an impressive return on investment over any time frame.
But can Apple replicate its past success in the future? Let's look more closely at the probable causes for Apple's previous performance and consider if investors who buy Apple stock today can expect similarly impressive returns.
Image source: Getty Images.
The iPhone is vital to Apple's success
Apple's dominant performance over the last decade could not have been achieved without the overwhelming success of the iPhone. One estimate from 2019 suggests that Apple sold at least 1.4 billion iPhones over the previous 10 years. In its most recent two quarters, iPhone net sales totaled a staggering $122 billion, up from $114 billion at the same time last year.
The iPhone is the center of Apple's ecosystem that keeps customers returning for newer versions of similar products. Indeed, in the two quarters mentioned above, iPhone sales totaled 55% of Apple's $221 billion overall sales.
AAPL Revenue (Quarterly) data by YCharts
The popularity of the Apple Watch, AirPods, Apple Music, and more would not be possible without the massive base of consumers who own an iPhone. Nevertheless, Apple has created several products that have endured numerous iterations. That demonstrated ability to develop innovative products fueled Apple's stock price performance.
Investors are confident that Apple will sell billions worth of its existing products and that it is likely to create new products that can reach similar if not more tremendous success. Otherwise, Apple's market capitalization would not be north of $2 trillion.
Even with its impressive market share, the sale of products tends to be cyclical and riskier than the sale of software services. With services, consumers pay for services through recurring subscription fees, which reduces the company's risk and provides a steady stream of revenue. Over the years, Apple has built out its services segment to become a meaningful part of its business.
As of its second quarter ending March 26, Apple boasted 825 million subscribers to Apple Music, iCloud, and Apple TV+, up by more than 165 million in the last year. The segment totaled 20% of Apple's overall sales in the quarter that ended in March.
Another benefit of a booming services segment is that these units often produce higher margins. Apple's services segment boasts a 72.6% gross margin, which is significantly higher than the product segment's gross profit margin of 36.4%. As seen in the chart below, the higher gross margin of the services business has lifted Apple's overall gross margin.
Investors have likened the growth of the services segment because of its lucrative 72.6% gross margin and its recurring nature. That's significantly higher than its product segment gross profit margin of 36.4%. The higher gross margin of the services business has lifted Apple's overall gross margin.
AAPL Gross Profit Margin (Quarterly) data by YCharts
Can Apple replicate its success from the previous decade?
While Apple's stock price may not replicate the magnitude of success, it is likely to maintain its position as one of the most dominant tech companies worldwide. Folks are spending an increasing amount of time on their electronic devices, and Apple has earned the trust of billions of people already. That could mean that if or when Apple launches a new product, it will garner a more significant part of the population who will at least try it out.
For instance, reports suggest that Apple has secretly worked on a self-driving electric car. If that product gets widespread customer adoption among existing Apple fans, it could deliver massive shareholder gains. Of course, it's nearly impossible to predict what Apple's precise returns will be over the next decade, but the company sure looks to be a safe bet for making today's investors wealthier over time. In recent weeks, Apple's stock has been caught up in the broader market sell-off, but that allows long-term investors to scoop up shares at a lower price.
