VALUATION HIGHLIGHTS

1. iPhone constitutes 43% of the Trefis price estimate for Apple's stock.
2. Services constitute 30% of the Trefis price estimate for Apple's stock.
3. Apple Watch,TV&Accessories constitute 12% of the Trefis price estimate for Apple's stock.

WHAT HAS CHANGED?

Vision Pro headset

Apple launched its mixed-reality headset the Vision Pro in early 2024. The device is priced starting at $3,499 and combines virtual reality - used for games and experiences - with augmented reality, which overlays digital information in the real world using cameras. Although the use cases of the device beyond content consumption remain somewhat unclear at the moment, Apple does have a knack for working with developers and building a software ecosystem around its products.

Apple's Q1 FY'24 earnings

Apple posted a better-than-expected set of Q1 FY'24 results, with revenue rising 2% year-over-year to $119.6 billion, and earnings standing at $2.18 per share, up 16% year over year. Growth was driven by the iPhone and services businesses, although the iPad and wearables businesses saw declines.

Note: Apple's FY'22 ended on September 24, 2022. Q3 FY'23 ended on July 1, 2023

Launch of iPhone 15

Apple released its new iPhone 15 devices at a special event on September 12. The flagship Pro and Pro Max models are now built with titanium casings and offer the usual imaging and processing power upgrades. The basic iPhone 15 and 15 Plus models have largely similar designs to last year. However, they offer better processors, and cameras and sport the dynamic island notifications system, which was previously limited to the Pro. The iPhone 15 starts at the same $800 as last year, while the Pro model begins at $1,000 - marking the seventh consecutive year Apple has held on to the price point for its flagships. However, Apple raised the entry price for the Pro Max to $1,200, while doubling storage capacity.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Apple's value that present opportunities for upside or downside to the current Trefis price estimate for Apple:

iPhone revenues And margins post improvements

• iPhone Revenue and Gross Margin:
  We estimate that Apple's iPhone revenues will improve slightly from $ 201 billion in FY'23 to around $227 billion by FY'30. However, if the company can improve its iPhone revenues to around $250 billion by the end of our review period, with gross margins rising to about 45% from our current forecast of 43.5%, there could be an upside of about 10% to our price estimate.

For additional details, select a driver above, or a division from the interactive Trefis split for Apple at the top of the page.

BUSINESS SUMMARY

Apple makes money primarily by selling mobile phones, computers, and tablets to consumers worldwide. Apple's well-known consumer products include the iPhone, Mac, iPad, and Apple Watch. In addition to selling hardware, Apple makes money from services that include the App Store, Apple Music, and iCloud.

SOURCES OF VALUE

We believe the iPhone segment is more valuable than the Mac and iPad segments due to the following:

Large mobile phone market

The smartphone market is significantly larger than the tablet market, and margins in the smartphone business are also likely to be higher. About 1.14 billion smartphones were shipped globally in 2023, per Canalys.

KEY TRENDS

Mac Gains Traction

Apple's Mac computers have gained market share due to their superior product differentiation, proprietary Mac OS software and applications, new M-Series processors, and premium build quality. Apple has also been benefiting from the fact that it plays in the high end of the PC market typically focusing on the lucrative $1,000+ price points rather than the commoditized low and mid-range where a bulk of the volumes come from. Over FY'22, Mac Revenues reached an all-time high of $40 billion, although it declined to about $30 billion in 2023.

Services Present A Growth Opportunity

Apple's Services business has grown by over 16% each year between FY'19 and FY'23, eclipsing the iPad and Mac to become the company's second-largest business segment with revenues of about $85 billion in FY'23. While the App Store remains the primary driver of growth, services such as Apple Music and Apple TV+ are also gaining traction. Apple's base of paid subscriptions on its platform has also been rising steadily, with over 1 billion active subscriptions as of late 2023.