Apple's (AAPL 0.51%) stock has dipped about 7% since August, having posted four consecutive quarters of revenue declines. Investors have grown concerned amid dwindling product sales, which account for more than 70% of the company's revenue. Apple is being challenged by macroeconomic headwinds, which triggered reductions in consumer spending across the tech market.
The iPhone manufacturer posted fiscal 2023 earnings on Nov. 2, revealing net sales decreased by 3% year over year. Revenue fell in Apple's four product categories, with services reporting the only growth during the 12 months.
Apple has retained leading market share in multiple product categories despite recent hurdles. Meanwhile, its services business has continued to flourish, with the company still managing to hit over $99 billion in free cash flow. Alongside ventures into high-growth markets such as artificial intelligence (AI) and virtual/augmented reality, Apple remains an attractive long-term investment.
Here's why buying the dip in this growth stock stock is a good idea right now.
Services on a path to overtake iPhone revenue
Apple's services segment includes income from the App Store and subscription-based platforms such as Apple TV+, Music, iCloud, and more. The digital business has become a particularly lucrative area for the company over the years and is now its second-highest earning segment after the iPhone.
Services regularly hit profit margins above 70%, significantly higher than products' profit margins of 36%. Meanwhile, the segment is rapidly expanding and could eventually overtake the iPhone as Apple's most valuable division.
Services posted revenue growth of 9% in 2023, with iPhone sales dipping 2% year over year. The difference follows a similar trend from the year before when services posted double the revenue growth of Apple's smartphone segment.
Digital services have propped up Apple's business during recent challenges and proved less vulnerable to macroeconomic factors than products. The growth trajectory of services is positive as it will allow Apple to rely less on product sales over the long term, especially when economic headwinds arise.
Moreover, one of Apple's biggest hurdles over the last year has been a decrease in customers upgrading their devices as inflation has spiked. However, services allow the company to keep profiting from old products as users continue to buy apps and subscribe to its various platforms.
Apple has faced repeated declines this year. However, it appears to be playing the long game by expanding its services business and investing in alternative digital markets like artificial intelligence (AI).
Apple remains the favorite among consumers
Apple's dominance in consumer tech has seen it achieve leading market shares in most of its product categories. The company's priority on quality, user-friendly design language, and an interconnected ecosystem have paved the way for nearly unrivaled brand loyalty from consumers. The public's preference for Apple's offerings has been especially prevalent during a recent economic downturn.
According to Counterpoint Research, U.S. smartphone shipments decreased by 19% year over year in the third quarter of 2023. The declines sent Samsung and Alphabet sales plunging 26% and 37%, respectively. However, Apple's smartphone shipments fell a more moderate 11%, allowing it to retain its 55% market share.
Data by YCharts.
The popularity of Apple's products has saved it from the worst market declines, suggesting its command of the market remains an attractive reason to invest in its stock. The chart above shows how, despite recent hurdles, Apple delivered more stock growth over the last five years than any other company in what's considered the "Big Five" of tech.
In the same period, Apple's annual revenue rose 47% and operating income close to 80%. The company isn't out of the woods yet and could continue to see product revenue decline into the start of 2024. However, its dominance in consumer tech means it could profit significantly once economic challenges subside. Meanwhile, its booming services business is on a lucrative growth track.
While Apple's stock dip has been unfortunate for current investors, it has also lowered the price for new ones. The company's price-to-earnings (P/E) ratio currently sits at 29, significantly lower than the same metric for competitors Amazon or Microsoft. As a result, Apple shares offer more value than both of these tech giants, thanks to its recent dip.
Apple remains a powerful figure in tech, and I wouldn't bet against its long-term future. Right now is an excellent time to consider investing in its stock.
