Shares of Apple (AAPL 0.17%) are currently 26% below their peak from December last year (as of April 10), a drop that has been spurred by ongoing tariff announcements. As of this writing, there is a huge 145% tariff that's implemented on goods leaving China for the U.S. If this remains in place, it could harm Apple, because 80% of its production is still based in China, according to estimates from Evercore.
For consumers, the result could be much higher prices. If the increased costs are eaten by Apple, on the other hand, its profitability will definitely take a hit. There remains a lot of uncertainty about how things will play out.
Despite the potential effects, which are commanding all the attention these days, Apple has proven to be successful in another area that highlights growing diversification in the business model. Here's what investors need to know.
Apple's push into financial services
In fiscal 2024 (ended Sept. 28, 2024), Apple generated $391 billion in revenue, of which 75% came from the sale of products. This includes its popular iPhone, Mac, and iPad lineups.
But the company's services division is an up-and-coming money-maker, growing revenue 13% in the latest fiscal year, much faster than the overall business. It represents the other 25% of Apple's total sales.
Within services, Apple is making a bigger push into the financial services realm, where it appears to have developed a strong foothold.
In 2014, the company launched Apple Pay, its digital wallet solution that lets users connect credit and debit cards to use for transactions in-store and online. More than 90% of retailers in the U.S. accept Apple Pay, which has more than 600 million global users and handles trillions of dollars in payment volume. This is undoubtedly becoming a widely used checkout option.
Apple Card was launched in 2019. This is a credit card that gives consumers up to 3% cash back with no fees whatsoever. Apple partnered with Goldman Sachs to handle the program. The credit card portfolio has 12 million customers (data from early 2024) and $20 billion in balances.
NASDAQ: AAPL
Key Data Points
Valuable for partners
It was reported that Visa offered the tech titan a cool $100 million to end its relationship with Mastercard, the current card network for Apple Card. American Express is also in the mix. What's more, issuers like JPMorgan Chase, Capital One, Synchrony Financial, and others are reaching out to Goldman Sachs, offering to take over the $20 billion in balances and to handle the program.
It makes sense why these heavyweights in the financial services industry would be trying so hard to be Apple's partner. Apple generates enormous amounts of revenue, and its customers are generally known to be more affluent than average. Consequently, there is a lot of buying power here, which can lead to revenue opportunities for banks and payment networks.
Apple might be facing some headaches due to tariffs and how they can affect its device sales. But its payment and credit card offerings continue to shine brightly. Partners are jockeying for position.
Should you buy Apple stock on the dip?
This gets to the discussion of whether or not Apple shares are a smart buy right now, especially since they are 26% below their record high. The price-to-earnings ratio is better than it was in December -- it's now at a 30.2 multiple.
However, I'm not convinced the tech stock can produce a return over the next five years that can outperform the broader market. Not only is the valuation still elevated, Apple's growth prospects aren't that robust. Plus, there is the unfortunate overhang of the tariff situation.
This is a fantastic business. But investors should pass on buying shares.
