Apple (NASDAQ:AAPL) is clearly a notoriously valuable brand, and this is a crucial competitive advantage with major positive implications for investors. With this in mind, let's take a look at a recent report from Credit Suisse analyzing important consumer trends in emerging markets and what the data means for investors in Apple stock.
A mouthwatering global Apple
Credit Suisse has recently published the fifth edition of its Credit Suisse Research Institute's Emerging Consumer Survey. The Investment bank has partnered with Nielsen to conduct nearly 16,000 face-to-face interviews with consumers across nine key emerging economies: Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, Turkey, and South Africa. The report provides a remarkably valuable database to analyze key demand preferences in emerging markets, and the numbers looks quite encouraging when it comes to Apple.
From the report:
No brand analysis would be complete without mentioning Apple, and once again we see steady improvement in momentum this year among both income groups. The size of the bubble is reflective of Apple's broad penetration in the largest emerging markets, notably China.
Based on data from the report, the Apple brand is booming among both low-income and high-income consumers. Among low-income consumers, Apple's penetration rate increased from 20% in 2013 to 23% in 2014, with an average increase over the last three years of 84%.
Unsurprisingly, Apple is even stronger among high-income consumers. Penetration rate grew to 63% in 2014 versus 32% in 2013, and the average increase over the last three years was 73% annually among the affluent.
When considering both low-income and high-income consumers, Apple saw its average penetration rate jump from 26% in 2013 to 36% in 2014.
Apple's massive opportunities in China
Based on data from the survey, Apple is the top brand for Chinese consumers when it comes to purchasing intentions in both handsets and PCs. This is quite remarkable considering that Samsung (NASDAQOTH:SSNLF)is generally stronger in emerging markets due to its lower prices, a big advantage in countries where personal income levels are lower and the carrier subsidy model is not as accepted as in the U.S.
But Chinese consumers have a big crush on Apple, and this is being a major growth engine for the company. Total sales in the Greater China region, which includes China, Hong Kong, and Taiwan, grew by a breathtaking 70% year over year in the December quarter. Apple produced $16.1 billion in revenues from the Greater China Region during the last quarter, accounting for a big 21.6% of total sales during the period.
The iPhone 6 and iPhone 6 Plus were launched in China during the second half of October, so they were not available during the full quarter. However, iPhone sales more than doubled in Mainland China during the last quarter.
Apple is actively betting on China for growth, and the company is clearly doing the smart thing considering the size of the opportunity and its growth momentum.
Apple has 21 stores in China, and it plans to nearly double that base to 40 stores by mid-2016. Apple stores are not only about points of sale, the company relies on its physical store as a main venue to create brand awareness and get in touch with customers. The stores are about the brand and the experience as much as the logistics and distribution, so Apple is putting its money to work where its opportunities are more promising.
Apple expanded its online store in China to over 350 cities during the last quarter, and online revenues during the quarter alone were bigger than the sum of the previous five years. When it comes to Apple and China, the numbers can be truly jaw-dropping.
Competition from local players operating in the lower end of the pricing spectrum is always a big source of risk for companies doing business in China. However, CEO Tim Cook doesn't sound very concerned about this:
The local competition was obviously there this quarter and has been there for many quarters before. And so the local competition is not new. I think we did really well there. I'm very proud of how we're doing. I was there right after the launch in October. And the excitement around the iPhone 6, iPhone 6 Plus were absolutely phenomenal. And you can see that in the results with Mainland China being up 100% year-on-year, despite not having a full quarter of sales since we launched in the second half of October. You can tell by that we're a big believer in China.
Competitors can close the technology gap versus Apple over time, and they will certainly keep bringing aggressively priced products to the market. However, Apple's brand value provides a rock-solid layer of competitive differentiation. When it comes to emerging markets in general and China in particular, Apple is looking remarkably well positioned for growth over the coming years.