The Apple Graveyard

Written by John Butler
Posted August 25, 2018

What do you think Kodak (KODK), BlackBerry (BB), and the taxi industry all have in common?

If you said Apple (AAPL) had played a part in each of their declines, you'd be correct.

In 2007, the iPhone's launch rang a death knell for many old, established industries. Remember Kodak? It once held at least half of the planet's photography market but filed for bankruptcy in 2012 because of the iPhone's built-in camera. Who carries around a camera nowadays when you have one built in to your smartphone?

BlackBerry was the leader in the mobile phone industry in the late 1990s. It was notable for providing a phone with email capabilities. By 2006, the company reached close to $50 a share, which was high at the time.

But by the end of 2008, a year after the iPhone's debut, BlackBerry's stock had plummeted to under $25 a share. BlackBerry couldn't keep up with what the majority of the public wanted.

BlackBerry continued to decline, and it reached a bottom as low as under $6 a share. The company was eventually bought out by Fairfax Financial in 2013. This was the same year that the iPhones 5S and 5C were released.

Nokia (NOK) was also a big player in the mobile phone industry. From the 1980s to the early 2000s, Nokia grew comfortably. In fact, Nokia's Mobira Cityman 900 was one of the first handheld mobile phones. In 2000, the company was trading at over $50 a share.

Like BlackBerry, the iPhone's 2007 launch spelled demise for Nokia. Apple's new smartphone completely shadowed Nokia's devices. And by 2012, Nokia was trading for under $2 a share.

In 2013, the same year that Blackberry was bought out, Microsoft acquired Nokia's devices division.

But it isn't only Apple's hardware that brings forth creative destruction. The applications on Apple's devices are bringing in the cash.

Back in 2012, Apple only did $3.5 billion in services revenue. Around six years later, Apple now does $30 billion, which is almost 10 times more.

Apple's services grew by more than 30%, which projects that its service revenue will grow to $50 billion over the next three years. But I think that's too conservative.

The great thing about services is its high profit margins. They’re huge. And Apple is transforming from a hardware company (iPhones, MacBooks, iPads, etc.) to a services business.

And this shift from hardware has turned Apple into a cash machine.

In fact, Apple has returned almost $250 billion to shareholders since 2012, in dividends and buybacks. And it still has more than $285 billion in cash left on its balance sheet.

With these new services applications, we’re seeing a demise in traditional services. Uber and Lyft have applications on the iPhone. Instead of calling a taxi, you have the convenience of using the app to schedule a ride. This has destroyed the taxi industry. Uber first tested its app in 2011, and it’s now worth something along the lines of $50 billion...

Apple Is Everywhere

For example, here in Baltimore, I use electric scooters from a company called Bird to get around town. They’re pretty cool. And they set the company up to be a player in revolutionizing small-distance travel and in reducing traffic congestion. So, how do you think I rent one off the street?

You guessed it: through an app on my iPhone.

Social media leaders, like Facebook (FB), Twitter (TWTR), and Snapchat (SNAP), have millions of active users a day. This brings in over half-a-trillion dollars in annual revenue. In a world where you're always on the go and can't be glued to a computer screen all day, how do you think these millions of users access their accounts?

You’re right again: from apps on their phones.

Apple and its devices have also given the mobile gaming industry a platform on which to flourish. People are saving hundreds of dollars a year on video game systems by electing to instead get their gaming through their phones. In 2017 alone, the mobile gaming industry made over $100 billion.

Platforms available on Apple’s devices are even changing how people transfer money. PayPal (PYPL) has an app on iPhones that allows you to send money to someone else with zero fees. And you can actually see how PayPal has benefited from its app. Its stock price has gone from almost $40 a share five years ago to the $88 a share that it touts today.

From transportation to taking photos and transferring money, there really is no limit for Apple. Entrepreneurs and inventors will continue to create innovative apps that will increase the company’s value. And in the process, there will be companies and industries that won’t be able to keep up. And they'll join Kodak, BlackBerry, and the taxi industry in the graveyard.

Happy investing,

John Butler Jr.
Contributing Editor, Park Avenue Digest

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