Weekend edition
Hey there, happy Saturday!
As we’re right in the thick of the earnings season hustle, let's pause from delving into companies’ reports and take a moment to applaud America’s most-profitable company — Apple 🍎
While Apple doesn’t release its second-quarter earnings until August 3rd, we couldn't resist delving into the secret sauce behind the company’s almost unrivaled success 🥇
All this, and more, in just 4 minutes to read.
— Weronika
QUOTE OF THE DAY
“Let your joy be in your journey - not in some distant goal.”
— Tim Cook
BROUGHT TO YOU BY
For thought-provoking conversations with seasoned investors, economists, traders, and others worldwide, we recommend the Top Traders Unplugged podcast and weekly newsletter.
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Take the first step towards reclaiming control of your portfolio, finding excitement, and embracing the possibilities that lie ahead.
WHAT ELSE WE’RE INTO
📺 WATCH: China, Elon Musk, and the space race to control thousands of Satellites
🎧 LISTEN: Designing your game plan for financial success with Devon Kennard
📖 READ: How Dubai became ‘the New Geneva’ for Russian oil trade
READER RESPONSE
Last week we asked readers: What's your favorite investing book, and why?
Here are a few responses:
"Thinking fast and slow" from Kahneman. It's more a psychological book than an investing one, but it helped me a lot to point out my errors of judgment.” — Adrien, Paris, France
“The Millionaire Next Door” by Thomas Stanley, the investing principles discussed are timeless.” — Robert, Los Angeles, CA
“The Psychology of Money because of short and crisp informative financial bits.” — Sohabran S Pundir, India
“How to Buy Stocks” communicates in layman's terms and starts at the absolute beginning of why and how a business goes public. From there, they make the case for investing in stocks and how to go about doing it. There’s no better place to begin one's education on the matter” — Andrew, Oneida, NY
Want to see your name and response up in lights?
Next week’s question: Leave your response.
APPLE'S UNSTOPPABLE SUCCESS
No. 1 Company
“Innovation distinguishes between a leader and a follower.”
That sentence, once articulated by Apple’s co-founder, Steve Jobs, could summarize how Apple has become one of the most successful companies in the 21st century.
But there’s more to the story.
Established in 1976 by Steve Jobs and Steve Wozniak, Apple emerged as a startup born in a humble garage. Fueled by ambition, passion, and a desire to create the finest electronic products, they set out to "put a ding in the universe" and revolutionize the tech industry.
Over the years, Apple has scaled up and consistently ranked among the world's most valuable companies. Apple's market capitalization currently stands at over $3 trillion, ranking ahead of its rivals, including Microsoft ($2.58 trillion), Google ($1.52 trillion), and Amazon ($1.33 trillion.)
Facts about Apple:
In 2018, Apple became the first publicly traded U.S. company to reach a market capitalization of $1 trillion.
In August 2020, the company made history again by becoming the first U.S. company to reach a $2 trillion market cap and then broke the record once more by hitting $3 trillion in 2022.
At the end of last year, Apple wielded over $160 billion in cash (and cash equivalent) reserves, amounting to 7.4% of the entire S&P 500's cash pool.
Its stock reached an all-time high this past week with a closing price of $195.
Today, Apple is the most profitable U.S. company on Earth.
Apple, the Innovator
The company’s vision is clear: “to make the best products on earth and to leave the world better than we found it.”
Undeniably, Apple is a company striving to enhance its products and services while placing the user experience at the forefront.
The company has undoubtedly revolutionized how we use devices today.
“An iPod, a phone, an internet mobile communicator... these are not three separate devices! And we are calling it iPhone! Today Apple is going to reinvent the phone.”
Jobs clearly envisioned Apple's direction when he presented the iPhone to the world in 2007.
From its initial success with products including the iPod, followed by the iconic iPhone and MacBook, Apple has expanded its offerings to include popular wearables such as Apple Watch, AirPods, and accessories, impacting the lives, preferences, and habits of millions of people.
With the upcoming launch of the augmented reality Vision Pro headset, Apple’s ability to once again woo customers with new tech is being put to the test.
Yet Apple's success is only partially attributed to its ability to develop new products and services. Equally important is how users embrace and enjoy the overall experience of Apple products, which are meant to be as intuitive as possible.
“Design is not just what it looks like and feels like,” Jobs once said. “Design is how it works.”
iEcosystem
If you're an Apple user, you can probably relate to being quickly immersed in Apple’s product ecosystem. I (Weronika) can attest that it’s a slippery slope – once you acquire one of their devices, you’re seemingly destined to be a lifetime customer.
Before you know it, Apple has become an integral part of our daily routine, assisting us in planning and completing our everyday activities, luring us into its interconnected user experience.
This sticky ecosystem might be one of the most valuable features driving its success.
While the iPhone remains Apple's most valuable product and primary revenue generator since 2008, contributing 52% of total revenue in 2022, the company has successfully expanded its product line to include the Apple Watch, AirPods, and a range of services.
Notably, its services revenue has surpassed that of the MacBook and iPad, highlighting the strong attachment of users to the Apple ecosystem beyond physical products.
Business model
Taking the reins from Steve Jobs, CEO Tim Cook has carried forward his predecessor's legacy and vision.
Cook states, "Some people see innovation as change, but we have never really seen it like that. It’s making things better.”
While innovation played a significant role in the company’s success, Apple's journey to becoming a tech behemoth involved multiple competitive advantages:
Strong brand image & global presence - Data shows Apple has the most loyal customers, with 92.6% of iPhone users planning to stick with Apple for their next phone, compared to 74.6% of Samsung users. The company benefits from a loyal fan base and leverages its strong consumer brand in the Americas, Europe, and China.
Product and segment expansion - Apple's product lineup goes beyond iPhones, MacBooks, iPads, and wearables, as they continuously expand their range of services attracting different customer target groups. These services, which rank second in revenue, include Apple Music, Apple Pay, Apple TV, Apple Podcasts, Apple Books, and so on.
High margins - The California-based company can command premium prices for its products, selling them with an overall markup of 41% over their total cost.
Low capital - Less capital needs to be reinvested into the business to get the same returns, given that Apple has multiple revenue streams and some segments don’t require hardware production and shipping costs.
Investor sentiment
Apple's on a roll. Its remarkable success continues, attracting the attention of investors for decades now.
Seasoned investors like Warren Buffett still see enough growth potential in Apple to justify multi-billion dollar stakes in the company.
After Warren Buffett’s company, Berkshire Hathaway, made another large purchase of Apple stock earlier this year, the tech company now consumes about 40% of Berkshire Hathaway's equity portfolio.
Buffett summarized his investment choice in this year’s Berkshire Shareholder event by saying: “It's a wonderful business, so we own a lot of it...Our criteria for Apple aren’t different than for other businesses we own. Apple is just a better business than any other we own.”
Then, he explained: “Apple has a position with consumers where they’re paying $1,500 bucks for a phone, and the same people pay $35,000 for having a second car. And, if they had to give up their second car or give up their iPhone, they’d give up their second car.”
Dive deeper
Learn more about Apple’s business here.
See you next time!
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