AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and accessories
$39.84B
Services (Company’s advertising, AppleCare, cloud, digital content, payment and other services)
$85.2B
Total
$383.28B
To understand the world in 2022, check this out!
This was Facebook, who had just turned into Meta a year ago.
A company worth around a trillion dollars is now worth $240 billion.
If you had invested $1000 in Facebook (rebranded as Meta) in 2015, you would have exactly $1000 today.
Meta is worth $240 billion in market cap, exactly where it was on June 2015.
Welcome to the new world of 2022!
A world where technology can create huge wealth, new markets, and expand the economy. But also a world where when cheap capital becomes expensive, technology turns upside down.
Let’s see some interesting bits and pieces of this year to understand the current market context.
It all started when a week back. Meta ads revenues slipped to $27.2B in Q3 of 2022, down from $28.2B in Q3 of 2021.
The metaverse is getting increasingly expensive, costing Meta almost $3.7B in operating losses in this quarter alone! By 2022, the operating cost of the Metaverse consolidated to over $9 billion.
As of September 2022, Facebook, rebranded as Meta, is a profitable company, generating $18.54B in net profits. Yet, if we look at its Reality Labs segment, which is in charge of building the Metaverse, it recorded a net loss of $9.44 billion in the first nine months of 2022.
Is Apple killing Meta?
Apple service business carried a 71% gross profit margin in 2022!
For context, the product business (everything from iPhone, Mac, iPad, Wearables, and Accessories) carried a 36% gross profit margin in 2021.
For further context, a company like Google, primarily a digital player, had a gross profit margin of 57% in 2021.
The gross profit margin tells you a business’s scalability and profitability potential.
On April 26, 2021, Apple launched App Tracking Transparency, a framework that required user authorization to access app-related data for tracking the user or the device.
Since then, Meta, Snapchat, Twitter, and all the apps that relied on third-party tracking have been severely damaged.
Apple’s service business, in 2022, is worth over $78 billion, with advertising among its fastest-growing sub-segments.
But how is Apple boosting its advertising business if it cuts off third-party tracking?
Simply, Apple is using a different paradigm for advertising.
As Apple highlights:
“…ads don’t access data from any other apps. In the App Store and Apple News, your search and download history may be used to serve you relevant search ads. In Apple News and Stocks, ads are served based partly on what you read or follow. This includes publishers you’ve enabled notifications for and the type of publishing subscription you have.”
Welcome to the new advertising world set by Apple!
A new advertising paradigm
In the last five years, Apple stock appreciated by 237%.
Whereas Facebook’s (now Meta) stock depreciated by 27.15%, most of which was lost in the last year when it rebranded into Meta (over 70% of its market cap has been gone in the last 12 months indeed).
Apple’s iOS change (users must explicitly opt-in to tracking) has completely wrecked Facebook’s ad machine.
In this scenario, Facebook – turned into Meta – has been throwing over $20 billion at Zuckerberg’s vision of Metaverse.
And the most interesting part?
Apple’s Service business this year is worth $78 billion, growing by 14%, compared to $68 in 2021.
Could you guess which one is the fastest-growing unit within the service business?
Indeed, Apple is building a thriving advertising business on top of its App Store, which might be already worth a few billion in 2022.
That does look like a business war for the advertising cake of the next decade!
Is Apple a service company now?
When it comes to Apple, many people get easily confused, and they look at the service side of it, as if it was a separate business unit.
That’s far from the truth. Apple’s service business lives on top of the successful combination of hardware, software (operating system), and marketplace.
For Apple, there would be no service business without the hardware line-up of products.
And even more, without the iPhone, which accounted for over 52% of Apple’s net sales in 2022.
No service business without iPhone
Last year, Apple sold over $200 billion worth of iPhones!
In 2022 (15 years from its launch), the iPhone represents over 52% of Apple’s total revenues.
iPad sales are the only segment slowing down; all the other segments keep growing.
In 2022, Apple generated $394 billion in revenues with a net income of almost hundred billion dollars!
Apple is the new Coca-Cola
As the story goes, in the 1980s, Steve Jobs had to bring adult supervision to Apple; he lured Sculley away from Pepsi by saying:“Do you want to sell sugared water for the rest of your life?”
In a strange turn of events, Apple has turned into the new Coca-Cola.
Indeed, Warren Buffet, consistently among the wealthiest people on earth in the last decades, is Berkshire Hathaway’s owner.
He’s famously a value investor and a disciple of Benjamin Graham (father of value investing).
Among the key principles of value investing is staying away from hot stocks (especially tech) and taking a longer-term view of financial assets based on fundamentals.
Yet, starting in 2016, Buffet started to invest in Apple, gathering – in a couple of years – a very large position (he owns through Berkshire more than 5% of Apple).
That position today is worth over $100 billion.
In 2022, Apple will be Berkshire’s largest holding, accounting for nearly 41% of its stock portfolio.
Berkshire, even in this disastrous year, has kept a good performance.
And guess, thanks to which stock? Apple!
So is Warren Buffet moving beyond value investing? Nope.
When he invested in Apple, he saw it as one of the strongest consumer brands in the world.
Just like he had done a few decades back when investing in Coca-Cola.
After evaluating the investment in Apple based on fundamentals, the remaining chunk of the decision was down to the strength of the company’s brand!
Apple is one of the most efficient tech companies, nonetheless its size!
Apple had 164000 full-time employees as of 2022, generating $2,404,439 per employee.
Below how Apple looks like in comparison with other big tech players!
Key Highlights
Meta’s Market Value: Meta, formerly known as Facebook, experienced a shift in market value from being worth around a trillion dollars to $240 billion in 2022. The company’s market cap remained stagnant over the years, reflecting the changing dynamics of the tech landscape.
Wealth Creation and Market Shifts: The modern world is characterized by technology’s ability to create substantial wealth and new markets. However, this era also witnesses significant changes when cheap capital becomes expensive, altering the tech landscape.
Ad Revenue Decline and Metaverse Costs: Meta’s advertising revenues declined, impacting its Q3 2022 performance. The company’s Metaverse initiative incurred substantial operating losses, indicating the costs associated with building and operating the Metaverse.
Apple’s Impact on Meta: Apple’s service business boasted a remarkable 71% gross profit margin in 2022, compared to the lower margin of its product business. Apple’s introduction of App Tracking Transparency significantly affected platforms like Meta, causing disruption.
Apple’s Advertising Approach: Apple introduced a new advertising paradigm, prioritizing user privacy. The company’s service business, worth over $78 billion, leveraged this approach to build a thriving advertising segment on top of its App Store, impacting Meta’s ad strategies.
Apple’s Value Creation: Apple’s stock appreciation over the past five years contrasted with Meta’s decline after its rebranding. Apple’s iOS changes affected Meta’s ad machine, yet Apple’s service business continued to grow, particularly its advertising segment.
Apple’s Hardware-Service Combination: Apple’s service business thrives atop a foundation comprising hardware, software, and marketplace synergy. The iPhone, constituting over 52% of Apple’s net sales in 2022, plays a vital role in supporting the service business.
Dominance of iPhone and Diversification: The iPhone remains pivotal for Apple, accounting for more than half of its total revenues. While iPad sales slow down, other segments continue to grow, contributing to Apple’s impressive $394 billion in revenue and nearly $100 billion net income in 2022.
Apple’s Transformation into a Consumer Brand: Apple’s transformation into a consumer brand is reminiscent of Coca-Cola’s brand dominance. Warren Buffet’s investment in Apple reflects its strength as a consumer brand and its parallel with Coca-Cola’s value in the past.
Buffet’s Investment in Apple: Despite being known for value investing, Warren Buffet invested significantly in Apple, acknowledging its strong brand presence akin to Coca-Cola’s. Apple’s role as a consumer tech giant played a crucial role in Buffet’s investment decisions.
Apple’s Efficiency and Size: Apple’s efficiency shines through its operations, even with a significant employee base of 164,000. With impressive revenue per employee, Apple maintains its status as an efficient tech powerhouse.
Comparison with Other Tech Giants: The comparison showcases Apple’s position alongside other prominent tech giants, highlighting its unique market presence, revenue generation, and overall impact in the industry.
As of 2024, major Apple shareholders comprised Warren Buffet’s Berkshire Hathaway with 5.92% of the company’s stock (valued at nearly $170 billion as of February 2024). Followed by other individual shareholders like Tim Cook, CEO of Apple, with about 3.3 million shares, and Artur Levinson, chairman of Apple, with over 4.5 million shares. Top institutional investors comprise The Vanguard Group with 8.27% ownership and BlackRock with 6.66% ownership.
Apple has a business model that is divided into products and services. Apple generated over $383 billion in revenues in 2023, of which over $200 billion came from iPhone sales, $29.36 billion came from Mac sales, $39.84 billion came from accessories and wearables (AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and accessories), $28.3 billion came from iPad sales, and $85.2 billion came from services.
iPhone and Services sales represented the main revenue drivers in 2022. Within the service revenues, the fastest growing sub-segment was the advertising business Apple built on top of the App Store, followed by the Mac, Accessories & Wearables, and the iPad.
In 2023, most of Apple’s sales (63%) came from indirect channels (comprising third-party cellular networks, wholesalers/retailers, and resellers). These channels are critical for sales amplification, scale, and subsidies (to enable the iPhone to be purchased by many people). In comparison, the direct channel represented 37% of the total revenues. Stores are critical for customer experience, enabling the service business and branding at scale.
Apple is a tech giant, and as such, it encompasses a set of value propositions that make Apple’s brand recognized, among consumers. The three fundamental value propositions of Apple’s brand leverage the “Think Different” motto; reliable tech devices for mass markets; and starting in 2019, Apple also started to emphasize more and more privacy to differentiate itself from other tech giants.
By February 2024, Apple was worth nearly three trillion dollars. Apple generated over $200 billion from iPhone sales in 2023, which accounted for over 52% of its net sales—followed by services revenues at over $85.2 billion, wearables and accessories at over $39.84 billion, Mac sales at $29.36 billion, and iPad sales at over $28 billion.
In 2023, iPhone sales represented 52% of Apple’s net sales, the same in 2022. Yet in 2023 revenue from the iPhone slightly slew down to over $200 billion in sales, compared to over $205 billion in iPhone sales in 2022, still a growth compared to almost $192 billion in iPhone sales in 2021.
Apple generated nearly $97 billion in profits in 2023, compared to almost a hundred billion dollars in profits in 2022, $94.6 billion in 2021, and over $57 billion in 2020.
Apple’s mission is “to bring the best user experience to its customers through its innovative hardware, software, and services.” And in a manifesto dated 2019 Tim Cook set the vision specified as “We believe that we are on the face of the earth to make great products and that’s not changing.”
It costs Apple $501 to make an iPhone 14 Pro Max, and the company sells it at a base price of $1099. This makes Apple’s base markup on the latest iPhone model at 119% Apple is the only tech company able to sell its tech products at such a premium, thanks to a combination of hardware, software, and marketplace.
While Apple Tim Cook’s salary has been $3 million since 2016, most of Tim Cook’s compensation is performance-based. For instance, in 2023, while the salary of Tim Cook was $3 million, he had total compensation of over $63.2 million, which comprised stock awards and other incentives and bonuses.
Tim Cook’s net worth is primarily comprised of his Apple stocks. As of 2024, he owned 3,28 million shares of Apple worth over $600 million at the current rate. However, Tim Cook has sold part of his Apple stocks over the years for hundreds of millions of dollars, making him a billionaire.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
Discover more from FourWeekMBA
Subscribe now to keep reading and get access to the full archive.
