Writing about Apple (AAPL) can be like beating a dead horse; good exercise but tiring and unproductive. So today I'd like to take a somewhat different approach and look at four aspects of Apple's business that often times fly under the radar.
Growth in Enterprise
Apple has long been an outsider looking in when it comes to selling to enterprise customers, while Microsoft (MSFT) has dominated the market. Now things are changing and the market opportunity is huge for the Mac, iPhone, iPad and AppStore. Corporate customers have the potential to take the Mac to the next level in terms of market share and recent figures suggest that this change is happening quickly. Apple Insider recently reported here that Mac sales to enterprise customers grew 66% year over year compared to just a 4.5% growth for the overall enterprise PC market. That rate of growth is hugely impressive and if it continues, we can expect Apple to eventually reach 20% market share in the overall PC market. A few years ago this would have seemed like a pie-in-the-sky dream but it is now looking like a real possibility.
What's more, these gains in the enterprise space should be a long lasting positive for Apple due in part to the regular upgrade cycle and the stickiness of the Apple ecosystem. Switching from Dell (DELL), to HP (HPQ), to Lenovo (LNVGF.PK) is easy. Switching from Mac back to PC is difficult and many of these new enterprise customers coming on board will become customers for life.
AppStore - The New Internet
In terms of revenue and profits, the AppStore is just a small part of Apple's business but it will have increasing significance going forward. More and more, people are accessing information through apps, instead of that old fashioned web browser thing. Wether it is stock quotes, news, social media, weather reports or any of the other information people need, much of it is no longer coming directly from the Internet proper. Instead people get this information from apps and these apps are often exclusive to iOS.
What we're seeing, in essence, is Apple owning and taxing the new Internet (30% cut of paid apps and in app purchases) and I believe that the implications of this cannot be overlooked. If Apple is able to substantially grow it's mobile market share, (by releasing a lower cost iPhone Nano, or something to that effect) the iOS platform and all the apps that run on it could replace the old way of accessing online information, effectively making Apple the gatekeeper of the new Internet. At this point the AppStore is only a few years old and we're still just beginning to realize the full implications of this new era of apps. And there is no company better positioned to profit from this revolution than Apple.
The new iCloud product has been making a lot of headlines over the past few weeks but the huge success of iTunes store is nothing new. iTunes has been thriving and has become the dominant force in music sales, a game changer in the industry. It is the hub that ties all the iProducts together and, along with the AppStore, it differentiates the iOS platform from Android and the wannabe competitors.
In music sales there is growing competition from Amazon (AMZN) and Google (GOOG) but with Apple's dominance in the digital music player market (iPod has roughly 75% of that market) Apple is well protected from those competitors. This fall, Apple will begin to offer their new digital music locker, which should further solidify iTunes as the leader in the industry.
This segment of Apple's business is still in its infancy and it will be fascinating to see how it grows and matures. iAds are a revolutionary way for businesses to reach customers. The ads are interactive, entertaining and they engage potential customers in a way in which the old interruption marketing could not. Apple has a long history of upending established industries and rewriting the rules. It is a bit early to tell for sure but it looks like the mobile (and possibly TV) advertising space better get ready to learn a new game.
The iAds that we know, little banner ads in apps that lead to an ad experience, are just the start of a larger and more profitable picture. As Apple TV matures and gains an audience iAds could become a key aspect of our TV watching habits as well. Imagine interacting with the ads on your TV and being able to share interesting products through email or social media. That sort of interaction would be very valuable for advertisers and could propel iAds into becoming a meaningful revenue driver for Apple. So far iAds are off to a slow start and there is a chance that they never fully gain traction but if they do Apple could have another big winner on their hands.
These four aspects of Apple's business don't always make the headlines or draw investors interest but it is just these sorts of under-recognized and under-appreciated opportunities that make Apple so undervalued. As these business segments grow, investors will become increasingly aware of the diversity of Apple's offerings and of the all-inclusive experience that they offer. It is not just about iPhones, iPads and Macs. It's a complete picture, one which promises continued profit and revenue growth.
Apple is like the Labrea Tare Pit of tech. Most customers who enter are stuck for life and at the bottom you'll find the fossilized remains of the old mobile phone market, the old record industry, the old PC market and the old Internet.
A company this dominant, trading at roughly 12 times earnings is a no-brainer. If you've been waiting to buy on a major dip don't hold your breath. There is very little downside left and a lot of upside ahead.
Disclosure: I am long AAPL.