Apple Inc ( NasdaqGS : AAPL) has experienced a negative annual revenue growth of -0.5% over prior year in the year ending 30th December 2023. In the year ending 30th December 2022, the annual revenue growth over prior year was negative as well, which was well below par at -2.8%. Surprisingly through, the company share price has been holding up well, as the investors consider the company of premium value and therefore anticipate a turnaround in the foreseeable future.
Indeed, the company is now at a critical juncture and must therefore be in quest for a strong catalyst to pursue accelerated growth. Although, there has been some elevated level of expectation among the investor community that, a greater chunk of future revenues must come from Personal Generative Applications, one must be cognizant of the fact that, Apple Inc’s iPhone and Services business segments continue to face intense competition in China, price sensitive part of India and Southeast Asia from the like of Huawei, Samsung, Xiaomi and others.
Nevertheless, the company boasts 2.2 billion active devices in the world, reaching all time high across all products and geographical segments for its fiscal year 2024 first quarter ended 30th December 2023. Apple Inc has approximately 1.4 billion active users and this is where the company can make a significant difference by increasing its product stickiness through Value-add such as Personal Generative AI applications. The company will be releasing its next generation AI products later this year, which must provide higher revenue and operating income boost in the future growth years. The key here is how quickly the company can monetize its personalized AI product offering through a monthly or annual subscription model targeting the appropriate customer segments thereby increasing the Customer Value Proposition of high value Apple Products and services. On a rough estimate, if 15% of the company’s active users subscribe to a personalized AI product priced between $5 to $10 per month, that would translate between $12.6 billion to $25 billion annually, which would mean the company is back on a trajectory of double-digit annual revenue growth over the future growth years. These additional revenues will go long way to stabilize the operating income margin at 35% or even higher depending on the further uptake of Apple’s AI subscription model. In summary, the potential revenue from AI subscriptions could significantly impact the company’s financials. Our model considers significantly high growth opportunity for the company moving forward.
Our Fair Value Calculation:
CAGR Revenue 9.48 % – Fair Value $205
CAGR Revenue 8.01 % – Fair Value $184
CAGR Revenue 7.02 % – Fair Value $170
Attached below is the valuation summary: