Few companies have created more wealth for their long-term investors than Apple (AAPL 0.62%). The iPhone maker is one of the most profitable businesses in history, with a staggering $100 billion in net income in fiscal 2022 alone.
Here are two reasons even more profits likely are ahead for Apple and its shareowners -- as well as a key risk that investors need to be mindful of.
1. Apple's ecosystem is becoming stickier
Once people buy an Apple device, they tend to remain loyal customers. This strong user retention is a major reason for the company's success. It generates bountiful recurring revenue, both from repeat device sales and ongoing service subscriptions.
To make its offerings even more sticky, Apple is making a major push into financial services. The technology titan recently unveiled a new high-yield savings account it will offer in partnership with investment bank Goldman Sachs. With a compelling 4.15% annual yield, no minimum deposit or balance requirements, and Federal Deposit Insurance Corporation coverage, Apple's new savings accounts are likely to enjoy high demand from consumers.
An Apple Card is necessary to open an account. Interest in the savings accounts should thus bolster the adoption of Apple's credit card and payment processing service, Apple Pay. Users can also easily deposit the cash rewards they earn from using the Apple Card into these savings accounts. Together, this burgeoning suite of financial products should help to lock Apple's customers into its product and service ecosystem.
2. A massive new growth market awaits
Apple produced $394 billion in revenue in 2022, but it still has plenty of room for expansion. Much of this growth is set to occur in international markets, particularly India.
With more than 1.4 billion people, India is now the world's most populous nation, according to the United Nations. And many of these people are planning to purchase their first Apple device.
Apple already generates nearly $6 billion in annual revenue in India, according to Bloomberg. That's up roughly 50% from the prior year. To help drive those sales even higher, Apple opened its first retail store in the country earlier this month, and it plans to open many more.
The company currently has a relatively small share of India's smartphone market, which is dominated by lower-priced devices. But the growing middle class is showing a propensity to pay up for higher-quality goods. Phones priced above $400 now account for 10% of India's total phone sales, up from 4% prior to the pandemic, according to Counterpoint Research.
All told, Wedbush Securities estimates that Apple's annual sales in India could climb to $20 billion by 2025.
This risk should not be overlooked
Still, an investment in Apple is not without risk. Perhaps the biggest threat to the company's highly lucrative business model is its reliance on China for its manufacturing.
That country's strict COVID-19 lockdowns created supply chain disruptions for Apple, and highlighted the risks posed by the tech company's concentrated production network. China's increasingly aggressive stance toward Taiwan and the potential for conflict in the region create an even more worrisome scenario.
To mitigate these risks, Apple is working to diversify its supply chain. Yet the challenge isn't to just shift production to other countries but to do it in a way that preserves Apple's sky-high profit margins. Fortunately, India has emerged as a possible solution.
Apple currently manufactures about 7% of its iPhones in India, and it plans to increase that figure to 25% in the coming years, according to Piyush Goyal, India's minister of commerce and industry.
Other officials would also like to see that happen. Prime Minister Narendra Modi is spearheading an incentive program to boost production in India, which could make it easier for Apple's manufacturing partners to expand in this fast-growing country.
