This content provides an overview of Apple Inc. as a global technology leader known for innovative consumer electronics and services. It highlights the company’s worldwide presence, diverse revenue streams, and strong market influence.
Apple Inc. is a multinational technology company founded in California, United States, specializing in the designing, manufacturing, and selling of consumer electronics, computers software and services. It was started in 1976 and due to the release of various products such as iPhone, iPad, Mac and Apple Watch, it has offered a great influence on the element of technology.
The company is firmly entrenched in more than a hundred countries; its revenue has a wide base, because it sells both devices and services (Li, 2021). The practice of innovation and class products have placed the company as a leading technology company that is ever in a position to meet consumers needs and requirements that are there in the market.
| Item | FY 2019 ($m) | FY 2020 ($m) | FY 2021 ($m) | FY 2022 ($m) | FY 2023 ($m) |
| Sales & Services Revenue | 260,174 | 274,515 | 365,817 | 394,328 | 383,285 |
| Cost of Revenue | 161,782 | 169,559 | 212,981 | 223,546 | 214,137 |
| Cost of Goods & Services | 161,782 | 169,559 | 212,981 | 223,546 | 214,137 |
| Gross Profit | 98,392 | 104,956 | 152,836 | 170,782 | 169,148 |
Table 1: Revenue Breakdown
(Source: Self-created in MS Word)
Brand Reputation and Loyalty
The business holds one of the most admired and respected brand images that exist in technology market. This is through maintaining a high brand image as well as ensuring that it develops quality, new and improved products that have a standardized usability by the consumers. These points of brand equity coupled up with results into high level of customer retention and high pricing strategies (Sakalauskė, and Leonavičiūtė, 2022). The fact that Apple is in a position to charge slightly higher amounts for its goods and services as compared to other similar companies is a sign of Apple’s dominance in the market and the great value that will be placed in the company’s products.
Ecosystem Integration
These one other strength of Apple; it has strong ecosystem integration. Apple has the integrated application ecosystem to make all the related application, media, service, and devices work in harmony which is hard for rival to emulate. The integrated approach to content and commerce goes beyond improving the satisfaction of the customer, but also triggers the chance of making multiple purchases in the future, as well as raising cross-sell sales (Chen, et al. 2021). The ecosystem approach makes users to be confined to the Apple ecosystem hence improving the overall user interaction and loyalty to brand.
Innovation and Product Development
More than anything else, it is this new product cycle that Apple evidently sustains through constant research and development (Chen, et al. 2023). Such novel offerings such as the iPhone, iPad and MacBook computers, as well as novelty in software, make the company a market leader and engages customers.
Strong Financial Performance
The strong and sound financial position of the Apple in terms of cash flows, high operating profit margins and the big cash balance means that is has the capability to invest in future technologies, acquisitions and for enduring business and economic risks (Nábrádi, et al. 2021). This aspect of financial strength is well admired on the side of the competitors.
High Price Point
Currently, one of the Apple’s main vulnerabilities is a high-price positioning that, in effect, excludes essential segments of more moderate consumers. Although this strategy promotes high level of profit margins, it hampers Apple’s potential to target a wider market share (Qiu, 2022). One weakness that Apple has to face is the high prices of its products and this becomes a major issue in developing economies.
Dependence on iPhone Sales
One weakness Apple has is the company’s strong reliance on iPhone sales. Apple has attributed much of its revenue from the iPhone and changes in the sales figure for this device can have more significantly affect on the overall results (Lu, 2024). The strict focus on a particular product type in this regard make Apple vulnerable to market penetration and shifts in customers’ preferences, as well as competition in the sphere of smartphones.
Limited Product Portfolio Diversification
Competitively, Apple could be said to be offering a good range of products but these are slightly concentrated. Concentration on the production of few products (eg. iPhone, Mac, iPad) reduces product differentiation and is dangerous for the company since it will suffer greatly if people’s demand for these products decreases.
Supply Chain Vulnerability
The geographical location of the supply chain network spread across the globe with high concentrations of supply in Asia especially China. The political crisis of the countries of origin or environmental and health crises (for example, the COVID-19 pandemic) can influence the supply chain and delivery of products and materials which is a threat to the company.
Expansion into Wearable Technology
The increase in demand of wearable application is good opportunity for Apple Company to explore. Home along with wearables these products like the Apple Watch and the AirPods are on the rise and this is a market that apple can fully exploit (Yie, et al. 2021). As the numbers of wearable device producing companies increases, it can open up a great market for new revenues by the company as well as improve its position in the fast growing health and fitness market.
Growth in Services Revenue
A major growth area is services; things like Apple Music, Apple TV+, and iCloud, and so on. When it comes to the matter of the solidity of sale of computer hardware the services sector help diversify the sources of revenue and keep customers engaged (Zeng, 2021). The growth of the software subscription plan and digital services corresponds to the consumer trends which may lead to consistent long-term revenues.
Expansion into Emerging Markets
They continue to have excellent growth prospects in various growth markets like India and Brazil, where there is an ever-growing BRI, or Better, Rest, Increase effect (Li, 2023). Thus, while Apple currently lacks the scale and affordable products or regional solutions that can capture those markets, these regions are growing very fast.
Sustainability and Environmental Initiatives
With the rising sensitisation of consumers to environmental conservation issues such as climate change, the firm’s goal to get to carbon neutrality besides using recycled materials is a marketing advantage that will appeal to the environmentally sensitive consumer (Lin, et al. 2023). It can also foster innovations in the design of products and of manufacturing and production techniques.
Intense Competitive Pressure
Apple is threatened by competition from other tech firms such as Samsung, Google, as well as the new entrant from China known as Huawei and others. Some of these competitors are able to provide the same or even better technology that is cheaper hence threatening the market share of Apple Inc and also exerting pressure on the company’s profit margin (Khalid, and Viktoria, 2023). The fast growing rate of technology makes Apple always under pressure to adapt, something which poses a challenge in the current world given the stiff competition.
Geopolitical and Trade Risks
Political risks and sources of conflict, especially those in the international market as visibly demonstrated through trade wars between the United States of America and China are a threat to the supply chain and the cost of production for Apple Inc. Policies such as tariffs and trade restrictions and geopolitical risks can affect Apple suppliers’ capability to provide products effectively (Zhao, 2024). Also, dependence on the foreign market means that Apple faces the costs related to exchange rates and to regulation of operations in foreign countries that may influence the company’s business and income.
Legal Issues and Problems, Patents and Copyrights
Apple often finds itself in litigation – patent litigation and antitrust investigations, to be precise (Moeller, 2020). These lawsuits can lead to enforcement of hefty penalties, tarnishing of the company’s image, and limiting of its strategies for operation, all of which will affect its performance and profitability.
Dependence on Key Markets
Harnessing of the key markets in the developed countries the U. S and Europe puts the firm in vulnerable situations whereby changes in economic conditions in these countries affects its business greatly, market saturated and ever changing regulatory environment (Gao, 2021). Contraction of some of these markets may therefore be considered to have a significantly negative effect on Apple’s financial health.
The “Dividend Disconnect Model” (DDM) is used to assess Apple Inc. according to the premise that the value of a stock lies in its expected capacity to pay out dividends in the future (Weinstein, 2020). For the valuation in this analysis the Gordon Growth Model is used.
The DDM valuation takes an assumption of a constant growth rate on the dividends which has been the case with Apple due to its solid financials and cash flows (Balzer, 2020). Under the model, the intrinsic value has been estimated to be $ 9. 55, while the current market value is $221. There is therefore a low book to market ratio of 55, characteristic of growth firms 0.72. This further suggests that Apple’s current stock price is overvalued to the extent that if the expected dividend payouts are used to benchmark the current price, it will still be high (Cusumano, et al. 2021).
The estimated dividend growth rate was assumed to be 5% and this expectation indicated that the possible future growth of dividend payouts. This is based on the fact that Apple has a dominant market share and well-diversified revenue base that should not be easily threatened by whatever circumstance that may prest often. That is why future political tensions and economic uncertainties can turn into threats, while Apple’s global diversification and the availability of considerable cash resources can serve as strength (Ruybalid, 2024). To be specific, the economic growth of the United States is predicted to remain productive and progressive due to technology enhancement and consistent consumer demand. Apple has the performance history of innovating and adapting to capture new markets, which makes it well positioned, and therefore its dividends’ stability and growth. Also, the large amount of cash that the company has gives it the ability to protect it from unsure economic conditions and still preserve the dividend policy of the company as seen in Apple Inc. Hence, maintaining the projected dividend growth rate as a sensible assumption, regarding Apple’s financial policy and its capacity to forecast and predict the world and respond to its challenges are concerned.
The FCF model which stands for “Free Cash Flow” is cash that a company can generate to maintain its assets (e Cunha, 2021). The plan aims at presenting Apple’s equity value by valuing-ahead cash flows from operations using the discount rate proper to Apple’s cost.
The FCF model recommends an equity value per share of $253.31 while the current market price is $221.72. With FCF model, it can say that Apple share is undervalued and hence come under the good list of investment area (Lopatka, and Page, 2022).
The Free Cash Flow (FCF) model assumptions when estimating Apple Inc. equity value include the following; Firstly, the projected Free Cash Flows (FCFs) are calculated based on the expected revenues, operating costs and capital expenditures all which indicate the strong position of Apple Inc in its respective market. . The FCF values differ each year taking into consideration the fluctuations in the market, new products that may be launched in the market as well as changes in customers’ consumption pattern. The terminal value of $3,000 million is the value which is obtained through the growth factor approximation starting from the year 2029 and assumes that the growth rate beyond 2028 is stable. An analysis of the cost of capital resulted in a composite cost known as the WACC of approximately 8 percent. 90% is subtracted from the value of these forecasts to obtain net cash flows that incorporate the cost of capital regarded by investors as the risk-adjusted rate of return.
Another method of equity valuation is the “Residual Income” (RI) model which is based on the residual income that results from subtracting the product of the cost of equity capital and the balance sheet value of the company (Birch, et al. 2020). It is used to estimate the value by computing the present value of residual income plus book value of equity.
The “Residual Income” valuation gives value of $97.25 and the P/ E valuation gives $ 88. 20 per share, below the prevailing market price of $221 of its common stock. 72; this suggests that the current stock prices may be overpriced under this model.
This valuation method uses price multiples, where Apple Inc is compared with industries such as the Microsofts, Google and the Amazon (Gleiss, et al. 2021). These two companies provide similar operations and therefore the comparison made will be directly applicable.
Relative to the price multiples valuation, Apple Inc has been slightly undervalued with the target of $236. 23 compared market price of $221. 72.
1.2.5 Recommendations
Due to the fact that in price multiples valuation, more emphasis is placed on comparitor companies, which may possess dissimilar growth rates, returns and capital structures; the value ascribed to this method is relatively low. More emphasis is placed in the Residual Income method as it is most suitable to the maturity of the business like Apple Inc (Smith, 2024). The FCF method receive the hike weight because of possessing features of flexibility to value the companies.
When a company valuation is done using various methods, the average target price of the shares is $146.95. Currently the company’s stock market price is $221 so the price the company buys back its stock at, $19 is below the market price. 72. Hence, the last recommendation is to sell the stock as it is overpriced as revealed by the above combined valuation techniques.
Microsoft Corporation is one of the world’s premier technology firms that is based in Redmond, Washington; it produces software products such as Windows, Microsoft office, among others. Apart from software the technological solutions offered by Microsoft comprises of cloud services with Azure, gaming with Xbox and production of devices like Surface tablets and Laptops (Spinetta, 2024). It has also shown a strong performance trajectory of the last few years mostly driven by its shift towards the provision of cloud services and venturing into new technologies.
| Item | FY 2019 ($m) | FY 2020 ($m) | FY 2021 ($m) | FY 2022 ($m) | FY 2023 ($m) |
| Sales & Services Revenue | 125,843 | 143,015 | 168,088 | 198,270 | 211,915 |
| Cost of Revenue | 42,910 | 46,078 | 52,232 | 62,650 | 65,863 |
| Cost of Goods & Services | 42,910 | 46,078 | 52,232 | 62,650 | 65,863 |
| Gross Profit | 82,933 | 96,937 | 115,856 | 135,620 | 146,052 |
Table 2: Revenue Breakdown
10 Years | MSc
(Source: Self-created in MS Word)
In the last few fiscal years, overall income of Microsoft has been on the higher side and steadily rising. Revenue, in particular, was US $ 211 billion in FY 2023 for Microsoft. nine billion up from one hundred and twenty five. 8 billion in fiscal year 2019 to show its sound growth trend. The company has also managed its cost of revene which has also increased in line with the revenue but at a slower rate hence there is an improvement in the gross profit.
The gross profit line in the income statement during the FY 2023 was $146. To this end, it saw its revenues increase from $82 to $1 billion. 9 billion in the financial year ended 31 March 2019. The increase has been closely associated with good performance in ICLP’s cloud computing and software divisions.
Diverse Product Portfolio
Microsoft Corporation is engaged in the production of a wide variety of essentials for modern computers which includes operation systems, productivity application, cloud solutions, and devices. Some of these are the Windows operating systems, the Microsoft office suite of products, Azure, and the Surface range of devices. This diversification eliminates the dangers of overdependence on a particular product or market segment and offers various centers of income (Shabdanov, 2023). They provide a way through which the company is able to offer a variety of products and services that meet the needs of all customers starting with personal computing and extending to business solutions.
Leadership in Cloud Computing
Another cloud offering from Microsoft is Azure, that services as one of the major competitors for Amazon’s AWS. Azure is a growing and innovative product that serves as a mainstay for Microsoft in the very competitive and quickly expanding cloud market (Xu, 2022). The company gets more demands from global consumer for its cloud infrastructure and company services that contribute much to the revenues and strategic performance of the company.
Claim on Brand & Market Dominance
Microsoft is one of the most recognizable and valuable companies of the world (Armitano-Lago, et al. 2022). The history of its enduring dependability and continuous evolution has placed it in a position of the industry leader in several industries such as the enterprise software and cloud services, as well as the sell of personal-computer devices.
Robust Financial Performance
Currently, Microsoft post impressive operating results, namely, growing revenues, high gross and net margins, and Cash Reserves suggesting that the company is in a position to invest in innovational activities, buy over new technologies, and provide a return on shareholder value in form of dividends and share buybacks (Benzaghta, et al. 2021).
Dependency on Windows and Office Products
Another major threat that has been identified is that users rely more on windows and office products.Nevertheless, the structure of revenues is still dominated by Windows and Office products: Windows accounted for 54% of Microsoft’s revenue in FY ’12. The focus on traditional software products puts Microsoft at several disadvantages concerning oversaturation and reduced market demand for such products (Ekapure, et al. 2021). Since choosing to focus on the business segment as well as consumers switching to cloud solutions, the company has to evolve iteratively.
Challenges in Hardware Segment
Microsoft’s thrusts into the design and manufacture of the Surface tablets and Xbox gaming systems have been challenged and weaker compared to the reign established in software and cloud, the company’s strong suits. Namely, this segment can be characterized by less gross and net margins than software and cloud businesses, as well as the relatively high fluctuation of results (Barrantes, and Leach, 2021). However, the changes in the market have not eroded the fact that hardware sales have their unique difficulties that can affect the company’s revenue and position.
Security and Privacy Concerns
Since Microsoft is a key company that provides cloud services and software, it is in high risk of cyber threats (Hveckovičs, 2020). Although the company has placed a lot of focus on security issues and safety of its clients, an incident would be terrible to company’s reputation and would compromise the trust of numerous enterprise clients who rely on Microsoft allowing their businesses move to the cloud.
Dependence on Legacy Products
Yet the company was slow to diversify and a good part of its revenue even in 2020 still comes from Windows OS, and traditional Office licenses (Holgersson, et al. 2022). They are now a popular choice as the market start turning from purchasing products to subscription services as well as cloud computing services, the older products themselves may slow growth and flexibility.
AI expansion
The transformation that is rapidly taking place in the production of artificial intelligence is therefore a great growth factor to Microsoft (Böttcher, et al. 2021). The firm is currently focusing on AI, developing it as a solution to include within the firm’s offerings such as Azure AI and MS 365 (Hazlett, 2020). Integrated AI technology can better the product usability and customers perception that may lead to the creation of new revenue generating factions in advanced technologies.
Growth in Enterprise Solution and Cloud Adoption
Cloud computing and enterprise solutions remain a dominant opportunity that Microsoft has got in the market. Hence, as more and more corporations shift their IT infrastructure and services to cloud, Microsoft Azure is in a good place to grab a large piece of that pie (Morhachov, et al. 2024). Also, new opportunities in markets for enterprise software solutions and services such as data analytics, advanced cybersecurity services etc are a good way to continue expansion and the maintenance of the leading market position.
Growth in Gaming and Entertainment
The gaming industry continues to grow and Microsoft with Xbox and the investment in game development and cloud gaming (Xbox Game Pass and xCloud) are in the right place at the right time. Adding to its provided games and entertainment choices a is a good way to generate more revenues and attract the attention of users.
Sustainability and Environmental Initiatives
With the sustainability factor increasingly becoming a top priority across the world, the company can benefit from the strategies of implementing carbon neutrality, and investing in technologies that meet this goal to foster a reputation for an environmentally sustainable company that can attract the class of customers and investors willing to patronize Microsoft (Hu, and Wu, 2023).
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High rivalry in technology industry
The company has a strong competition in all fields of its operation, including cloud computing, productivity suites, and hardware (Butarbutar, et al. 2023). There are very serious threats that come with competitors like Amazon with AWS, Google with Google cloud and even apple company in the hardware. Because of the fast rate of advancement in technology, Microsoft needs to keep on evolving in order to remain competitive.
Cybersecurity Risks, and Data Privacy
Microsoft company is among the key players in cloud and enterprise solutions and as such exposed to cybersecurity and data privacy risks. Spectacular leaks of personal information and security breaches can cost clients’ trust and lead to monetary and image losses (Stoian, and Tohanean, 2021). It is essential for the company to address and minimise these threats and conform to the new rigorous requirements regarding personal data protection.
Cybersecurity Threats
Microsoft, which has a large activity on the web, is always at risk of having its networks targeted by cybercriminals. Any foul play could lead to make huge losses, legal complications and hurt the image of the whole firm (Mi, 2024). Due to the dynamic nature of the threats in the cyber space, the security measures have to be updating frequently, which may be expensive.
Geopolitical Instability and Trade Wars
Some of risks which affect Microsoft include geopolitical risks due to its diverse operations across the world and geopolitics being volatile, risk of trade wars and protectionism (Kumar, and Kunte, 2023). They can upset the supply chain, raise costs and affect International sales, especially in areas such as China that has complicated the business operati0ons formally of the company and is home to strong local technology companies.
The Dividend Discount Model (DDM) is employed to analyse the Microsoft Corporation with the rationale being that the value of the stock is the sum of the present dividends that the firm will pay in the future (Alfarisi, 2023). This paper uses the Gordon’s Expected Dividend Growth Model in arriving at the firm’s valuation.
As for the firm value calculation, it uses the DDM approach and presupposes the constant growth of dividends on the grounds of Microsoft’s high financial indicators and cash flows (Schwartz, et al. 2021). Thus by applying the model of the intrinsic value the company is estimated to be at a worth of $ 49. 45 while the current market value of the actual shares is $421, hence a clear indication that the effectiveness of share repurchases is perceived to be below par. 03. This mean that Microsoft’s stock is overpriced when one simply considers the expected dividend yield.
Based on these assumptions on expected constant growth rate of the company , the expected growth rate in dividends is at 4%. Hence, the positioning of Microsoft within the technology sector and the firm’s enhanced financial performance justify the 00% for Microsoft. Although such issues as fluctuating global markets and economic instabilities could affect Microsoft’s revenues, the presence of strong and varied revenue sources such as the cloud computing and the enterprise software will enable the company to continue growing its dividends (Zhang, 2020). Technological developments continue to experience growth in the U. S economy and this is expected to go up in the future years; thus the bright future of Microsoft financially. Thus, political tensions in political activities and certain market instabilities may occur affecting the organization; however, due to Microsoft’s solid balance sheet and adequate financial resources, the company can sustain its dividend policy and shareholder reward system. Hence, the expected divident growth rate is reasonably assumed basing on the past trends of the Microsoft firm and its power to face future economical and geopolitical strains besides the continuation of its social responsibility to share holders.
The evaluation by FCF model is applied in determination of Microsoft’s equity value by giving present value to the future cash flows using the discount rate that is equivalent to the firm’s cost of capital.
On the basis of the FCF model of Gordon, the equity value per share was calculated having a value of 792 $. 53, which is much higher as compared to today’s trading price of $421. 03 (Rameesa, and Veeramanju, 2023). This means that Microsoft stocks are depressed according the FCF model, and they could be good investment.
The assumptions made when using the FCF model for Microsoft Corporation rests on certain propositions with regards to the future prospects of this company. The assumed Free Cash Flows (FCFs) concern revenue growth, cost control, and capital expenditures in Microsoft’s business model that is known for a solid cash flow generation. Due to the variations that are expected to occur in business operations, market situation and potential investment on innovation, it is expected that the FCFs will also vary in the various years. It is expected from the terminal value of $4,000 million which is based on the concept of maintaining constant growth after year 2028. A discount rate, equal to Microsoft Weighted Average Cost of Capital WACC that is equal to 8%. This tool, with a coefficient of 76% is used to discount the future cash flows to their present value. This approach allows for a holistic assessment of the company since it holds into account the perceived risk and return by the investors.
The Residual Income (RI) model more focuses on the increment in the present value of expected future residuals, discounted at the cost of equity funds (Kornelakis, and Petrakaki, 2024). It is computed by adding present value of residual income to the book value of equity.
According to Residual Income valuation model, the value for each theoretically active share is $ 103. 51 per share which are currently trading at $421 in the market at the time of writing this paper (Aspara, et al. 2023). It is illustrated that, under the CFI of 03, the stock of the company is estimated to be overvalued under this model.
Relative valuation may involve comparing Microsoft Corporation with other business within the industries such as Apple, Google and Amazon using the price multiples (Kawai, 2020). These companies are in the same industry, and therefore the comparison is made within the sector.
In light of the scope for further analysis in using price multiples valuation, Microsoft Corporation is undervalued with a target price of $497. 69 bear a completely different value than its market price which is $421. 03.
2.2.5 Recommendations
The final method, namely the price multiples valuation, is less preferred owing to the fact that it is based on the analysis of comparable companies, which can be characterised by different growth dynamics, returns on nets assets, and capital intensity (Kim, 2020). The Residual Income method is given a higher weight given the fact that larger firm like Microsoft Corporation is probably past the initial maturity (Lemley, and McCreary, 2021). FCF receives the highest WACC weight because of its versatility and efficiency while determining the value of enterprises.
Performing a valuation using various methods, the average target price stands at $354.30 which for me is low than the current market price of $421. 03 (Єрешко, and Кириченко, 2024). Selling is the best recommendation which can be used for this share as it since the combined valuation methods shows that the stock is fairly valued.
3. Conclusion
Comparing the strategic positions of Apple Inc. and Microsoft Corporation it can be stated that they have different kind of strengths. Strong reasons that support the valuation of Apple are its well-built ecosystem, and the consistently growing revenue, especially from the services division, where its customers are very loyal. Looking at the “Dividend Discount Model” (DDM), “Free Cash Flow” (FCF), and “Price Multiples”, Apple has been valued fairly which can be attributed to the excellent financial showing of the company and its leadership in the markets.
Microsoft on the other side gains from its leading role in cloud and enterprise solutions. According to the value schemes, Microsoft is somewhat undervalued with large growth prospects because of its diversified streams of operations and efficient cash flow. The two businesses are established in the tech field with apple leveraging on consumer devices while Microsoft’s solutions are basically for the business markets. This company analyst report mainly shows the strategic analysis and the valuation which prove the leadership of the companies, while Microsoft can be considered to have further upside.
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