Question
Apple at $2 Trillion Leaves No Room for Error Milestone brings record valuation just as the key App Store business model comes under attack Apple
Apple at $2 Trillion Leaves No Room for Error
Milestone brings record valuation just as the key App Store business model comes under attack
Apple Inc.AAPL-3.26%became a $2 trillion company on Wednesday. The irony is this shows just how little it can afford to lose.
On Wednesday morning, Apple's share price topped the level needed to exceed a $2 trillion market capitalization. That level didn't quite hold at the closing bell. But Apple has still enjoyed a strong run: The stock has averaged a weekly gain of 3.5% since the beginning of June, according to FactSet. Its business has proven surprisingly resilient to the pandemic. The company still generates more than 80% of its revenue by selling high-price devices made almost entirely in China, where the outbreak first occurred. Combined revenue from all those devices grew 10% year over year in Apple's most recent fiscal quarter ended June 27. The stock has jumped more than 20% since those results were reported on July 30.
Epic Run
Apple's share price as a multiple of forwardearnings
Source: FactSet
.times
Market value hits $1 trillion
2016
'17
'18
'19
'20
5
10
15
20
25
30
35
But Apple is also now facing an unprecedented challenge to its App Store business,putting it in the crosshairs of lawmakers and regulatorson both sides of the Atlantic. The matter has escalated significantly over the past few days, as Epic Gamessued both Apple and Googlein federal court after the two companies removed its popular "Fortnite" videogame from their app marketplaces as Epic tried an end run around their respective payment systems. In a new twist Monday, Epicsought a restraining orderagainst Apple to prevent the game's removal and to keep Apple from ejecting Epic from its developer program.
Since its launch in 2008, the App Store has grown into a crucial business for Apple. Based on regulatory filings, the App Store has been the largest contributor to the growth of Apple's services segment in three of the past four fiscal years. The services segment is now Apple's second-largest segment after the iPhoneand the one that has delivered the most steady growth over the past four years as the smartphone business has matured. Service gross margins are also key to Apple's overall business model, coming in 34 percentage points higher than the company's product gross margins for the nine-month period ended June 27.
NEWSLETTER SIGN-UP
Markets
A pre-markets primer packed with news, trends and ideas. Plus, up-to-the-minute market data.
PREVIEW
SUBSCRIBE
The ultimate outcome of the Epic lawsuit and regulatory probes is impossible to predict. But at $2 trillion, the market is valuing Apple as if nothing could go wrong. At that level, the stock trades at more than 32 times forward earningsor 31 times excluding $81 billion in net cash on the company's balance sheet. That is its highest multiple in more than a decade. It is also about double the multiple the shares fetched when Apple's market value first crossed the $1 trillion mark in August 2018.
In other words, all a $2 trillion valuation really means is that Apple investors are now willing to pay twice as much for the same earnings outlook. With a key business under attackand a lot ofhype about a 5G iPhonebeing launched this fall into a weakened global economythat's a big bet indeed.
https://www.wsj.com/articles/apple-at-2-trillion-leaves-no-room-for-error-11597831200
Instructions:
Please read the WSJ article "Apple at $2 Trillion market value leaves o room for error" and write SUMMARY of the article and what is main idea of article.
Thank you!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started