It was only the second day of 2019, and Apple CEO Tim Cook already had some bad news for investors. Because the company had sold fewer iPhones than expected, he said, Apple’s quarterly revenue would be below expectations.
At the time, it looked like Cook and his company would have a daunting year ahead. The following day, Apple’s shares closed at $142.19, in what would be their low point for the year.
Then something unexpected happened: Contrary to Cook’s note of caution, Apple’s stock would go on a tear and have its strongest year since 2009. Its stock finished 2019 at $293.65 a share on Tuesday, making for a 89% annual gain and triple the 29% rise for the benchmark S&P 500 Index.
For the entire decade, Apple’s stock rose nearly tenfold. In other words, someone who invested $10,000 in the company on Jan. 1, 2010 would have $109,627 today in stock gains and dividends.
In many ways, Apple still stands at the center of not just the stock market but of the U.S. economy. The iPhone, its flagship product, set the standard for smartphones during a decade in which they became ubiquitous, and even indispensable. Apple had the highest market capitalization for the bulk of the past decade and became a staple of many stock portfolios.
That makes Apple’s rebound in 2019 that much more notable, since it showed a resiliency and an ability to mine new areas of growth at a time when the market for smartphones has matured to the point of saturation. IPhone revenue fell 14% in the most recent 12 months to $142 billion, but Apple saw growth in other business segments: iPad sales rose 16%, wearables and accessories surged 41%, and services revenue gained 16%.
It’s been some time since Apple rolled out a blockbuster product like the iPhone, but wearables including Apple Watch, AirPods, and Beats earphones have helped pick up the slack, with these products now making up about 9% of Apple’s total revenue.
“We set Q4 revenue records for wearables in every single market that we track around the world,” Cook said in a conference call discussing Apple’s most recent earnings. “Our wearables business showed explosive growth and generated more annual revenue than two-thirds of the companies in the Fortune 500.”
On Monday, Citi analyst Jim Suva said wearables may show surprising strength again this holiday quarter.
Apple’s services has also quietly grown into a $24 billion business, or 18% of its total sales. During an event in March, Apple debuted new subscription services for games (Apple Arcade), video (Apple TV+) and news (Apple News+), as well as a new credit card tied to Apple Pay. In the fall, Apple launched its paid video-streaming service, taking its place alongside Netflix, Disney, AT&T and others with original programs like The Morning Show and Dickinson.
But Apple’s biggest seller remains the iPhone. And while sales of the device this year declined, it showed signs of improving toward the end of the year after the September premiere of the new iPhone 11, iPhone 11 Pro, and iPhone 11 Pro Max.
Having a range of premium iPhones and lower-priced options is Apple’s strategy for enticing customers to upgrade to new phones. The budget-friendly iPhone XR has been the top-selling smartphone worldwide for the past four quarters, according to Counterpoint Research.
But Apple needs more than budget models to revive its iPhone sales. Some analysts think that the company may get a long-needed boost starting next year by introducing smartphones that are compatible with high-speed 5G networks that carriers are starting to roll out in earnest.
“We believe iPhone 11 is just the front end of this current ‘supercycle’ for Cupertino with a slate of 5G smartphones set to be unveiled in September that will open up the floodgates on iPhone upgrades across the board that the Street continues to underestimate,” Daniel Ives of Wedbush said in a research note last week, using Apple’s hometown as a stand in for the company.
Apple has weathered its challenges well enough that shareholders have rewarded it with one of its best years in a while. Yes, much of Apple’s gains came from a rebound in what had been an oversold stock market in late 2018. Still, it’s remarkable enough to see a mature company stage an 85% stock rally in a single year. It’s especially so for a company that started off the year with hundreds of billions in market cap. Apple’s value ended 2019 at $1.3 trillion.
One of the challenges Apple will face in 2020 is managing investor expectations. The 2019 rally has left Apple shares valued at nearly 25 times its most recent annual profits. In a recent research note, Deustche Bank analyst Jeriel Ong expressed concern that Apple’s stock already prices in future growth.
For now, though, Apple shareholders can ring in the new year with something to celebrate: an unexpectedly strong performance for a company that proved resilient this year, given the clouds that hung over it early on.
