3 key growth opportunities for Apple (not including the iPhone) – The Motley Fool

Apple (NASDAQ: AAPL) made it clear that he envisioned a time when his iPhone would not be the main source of revenue for the company. Apple's management had already hinted at this change by announcing late last year that it would no longer report iPhone unit sales figures in its quarterly results.

This change came after the slowdown in iPhone unit sales, but this still accounted for 62% of the company's total business turnover in the last quarter. So how does the company plan to compensate for the slowdown in the segment? According to comments from Apple's management and some recent steps taken to create new products, a clearer strategy is beginning to appear for Apple's life strategy after iPhone.

Portable technology

This is understandable if investors are a bit skeptical about wearable technology to help increase Apple's long-term sales. Portable technology devices – like the Apple Watch – have been on the market for several years and are not the resounding success of smartphones.

But to reject the potential of this segment would be a huge mistake. Recent data from Markets and Markets shows that the adoption of mobile technologies is accelerating and that this year, one in five Internet users in the United States will own a mobile device.

Apple's apparel, home and accessories segment generated revenue of $ 7.3 billion in the first quarter of 2019, up 33% from the same quarter of the year last. The company's apparel sales – Apple Watch and AirPods – have increased by almost 50%.

To fully understand the size of Apple's Apparel business, consider that Apple's Chief Financial Officer, Luca Maestri, said in the recent statement of earnings "that, based on the turnover of the four In recent quarters, our apparel business is approaching the size of a Fortune 200 company.

If all this is not enough to make investors optimistic about the future of Apple's apparel technology, remember that Apple would also be working on augmented reality glasses that, once launched, could add about 13 Billion dollars to Apple's business figure. . However, even if Apple does not publish anti-glare glasses, the company is already rapidly increasing its sales of laptops and Apple investors should expect more concentration on this segment.

Artificial intelligence

Almost all technology companies are investing time and resources in artificial intelligence (AI) nowadays, and Apple is no different. Last year, Apple hired John Giannandrea, who had previously worked on artificial intelligence at Google, to lead the artificial intelligence team of the voice assistant. Apple, Siri. Giannandrea was promoted to the executive team in late 2018, which shows that Apple is taking AI more seriously than in the past.

Apple would have focused on integrating artificial intelligence into more of its services, and Giannandrea is considered an essential element because he did a similar job during his tenure at Google. These changes may seem insignificant, but investors should keep in mind that AI is a critical element in improving future applications and services of the company.

Apple's autonomous vehicle project, for example, is a good example. The company is working on an autonomous vehicle platform and is accumulating autonomous miles right now, all with the help of artificial intelligence. Recent data from the California DMV showed that Apple's autonomous vans had run 79,745 miles last year, up from 838 miles in 2017. The company also increased its fleet of audio-visual vehicles to 62 vehicles in 2018 from eight from the previous year.

In order for Apple to benefit from the $ 7 trillion ($ 20 trillion) passenger economy, it will need to have state – of – the – art AI technology. The artificial intelligence will not replace the iPhone in a directly comparable way, but this segment is a key area that will help Apple to develop new technologies that will help offset the iPhone's revenue.

Services

The most important element of Apple's post-iPhone strategy is the service sector of the company. Apple's current services include Apple Music, iCloud Storage and its App Store. In the last quarter, service revenues jumped 19% to $ 10.9 billion.

One of the reasons Apple relies on its service segment to generate new sales and new profits is that this segment is very profitable. The gross profit margin of Apple's services business in the last quarter was 63%. And the service sector of the company is not only lucrative, it quickly adds users.

During the first quarter teleconference, Maestri said: "Many service categories set a new sales record in the quarter, as the number of pay accounts grew at a double-digit pace over the previous year. last year, more than 360 million paid subscriptions on all of our services. "

This figure of 360 million is up from 240 million in the quarter of the previous year. And it's not just users that Apple is increasing, service revenues have gone from $ 8 billion in 2010 to more than $ 41 billion in 2018.

Apple may soon add new services to this growing segment and rumor to work on a new streaming TV service that could be launched next month. The company is currently creating its own original content and will likely include subscriptions to other content, in the same way as Amazon creates its own original content for its service and also offers subscriptions to premium channels.

As services revenues are growing rapidly and profit margins are high, it is clear that the company sees this segment as its next big earner.

Last thoughts

Of course, Apple still generates the vast majority of its total sales of iPhone sales and investors can expect the company to continue trying to boost smartphone sales. But with the slowdown in iPhone sales and the stagnation of the smartphone market, it's time to turn to Apple's new opportunities. And if the segments above are an indicator, Apple still has a bright future.

John Mackey, CEO of Whole Foods Market, a subsidiary of AMZN, is a board member of The Motley Fool. Chris Neiger has no position in any of the mentioned actions. The Motley Fool owns shares and recommends AMZN and Apple. The Motley Fool offers the following options: Long Calls from $ 150 to January 2020 for Apple and short calls from $ 155 to January 2020 on Apple. Motley Fool has a disclosure policy.