The iPhone will likely continue to be a significant part of the Apple (AAPL 0.52%) business in the near and medium term. However, some worry that the outsize growth in the smartphone market is slowing. There are questions about whether market saturation and a lack of mobile phone innovation mean the world has already hit "peak smartphone."
If smartphones have indeed peaked, Apple will need to conquer new markets to continue growing. Here are three markets that can drive Apple's stock higher.
1. Augmented reality
Augmented reality (AR) integrates computer-generated visual or audio content with the user's environment in real time. The integration can occur on a phone, car windshield, head-mounted display, or glasses. AR glasses were first made famous with the Google (part of Alphabet) Glass introduction in 2012. And ever since, companies from small start-ups to behemoth enterprises have worked on building viable AR products.
Many technology companies are predicting that AR will replace smartphones by 2030. For instance, Nokia CEO Pekka Lundmark expects the most common mobile interface to be AR by decade's end.
Additionally, experts project the market to be massive. For example, Grand View Research estimates that the AR market will grow to $597.54 billion by 2030. And in comparison, the entire smartphone market was $378.29 billion in 2020, according to Market Data Forecast. If AR forecasts become true, Apple must eventually replace the iPhone with a dominant AR platform or potentially become irrelevant.
Although no one has confirmed that the company is working on AR, Apple CEO Tim Cook mentioned it in several interviews and presentations. In a recent interview with China Daily, Cook said that AR technology is in the early innings and to stay tuned about what Apple offers. Moreover, MacRumors' website says there is scuttlebutt that Apple has a secret team of hundreds of workers working on AR projects. And the website says Apple has plans to introduce a headset product in 2023, followed by an AR glass product later.
2. Payments
The company first dipped its toes into the payments industry in 2014 with the creation of Apple Pay to facilitate cashless and cardless payments in apps, online, and in physical stores. Apple Pay generates revenues in two ways.
First, Apple allows users to transfer money from their Apple Cash card to a bank account or debit card within one to three business days for free or use instant transfer for a 1.5% fee per transfer.
Second, during purchases from stores, it gains a cut of the interchange fee, the money merchants pay to accept credit cards. Analysts believe that Apple gets paid 0.15% of each purchase. This slice of the pie might not sound like much. However, data company Statista projects the total transaction value for digital payments to reach $8.49 trillion in 2022 and grow to $15.17 trillion by 2027, signaling significant revenue potential.
Although Apple has the most prominent mobile wallet in the U.S. at 48% market share, it only makes up 5.8% of in-store checkouts. Debit and credit cards have the largest market share at 44% and 27%, respectively, while cash still makes up 19%, according to the website PYMNTS. Therefore, Apple is betting it can grab a significant percentage of market share from cards and cash over time.
3. Healthcare
Apple opened its foray into health in 2014 by introducing a health informatics mobile (mHealth) app. The app has applications in heart health, sleep, respiratory, mobility, hearing health, fitness activity, and many other areas. Apple uses the data collected from the app to help users track their health, enable researchers to make new scientific discoveries, and help support public health initiatives, among other things.
The opportunity in health is enormous. Market research company Fortune Business Insights estimated the global mHealth apps market at $38.89 billion in 2021, growing to $314.60 billion by 2028 -- a compound annual growth rate of 34.8% during the forecast period. Additionally, Tim Cook once said in a 2016 interview that the healthcare market's potential could dwarf the smartphone market, which today accounts for 52% of Apple's 2021 revenue.
Apple faces significant competition
Apple's biggest risk is that it likely won't enjoy the same technological lead it had when it first introduced the iPhone. The company could face products and services just as good as its own in AR, payments, and healthcare.
However, Apple's most significant competitive advantage is that its ecosystem contains user data and content that is costly to switch to a competing platform. Thus, once a user starts using its ecosystem, they are reluctant to switch to a competitor's platform, even if a competitor should manage to provide an equivalent or better user experience.
Additionally, the company has a strong brand worldwide and should continue attracting new users to its platform. Therefore, a wise person might bet on Apple's dominance in any markets it enters, resulting in continued substantial profits for investors.
