shares apple (AAPL 1.63% ) It has outperformed the broader stock market significantly over the past decade, gaining 653% thanks to the phenomenal success of the company's various product lines and the growth of its services business.
However, the iPhone was the cornerstone of Apple's impressive growth. The company sold approximately $192 billion of iPhones in fiscal year 2021, which is 53% of its total sales. Furthermore, Apple's iPhone revenue increased 39% in the past fiscal year and outperformed its overall revenue growth of 33%. The company has benefited greatly from the growing adoption of 5G smartphones, and has registered solid growth in volumes and average prices - a trend that is here to stay, and should help Apple sustain its explosive growth.
Let's see why this might be the case.
Image source: Getty Images.
High smartphone spending in the 5G era is a boon for Apple
Counterpoint Research estimates that the global average selling price (ASP) of smartphones rose 12% in 2021 to $322, driven by increased sales of 5G smartphones that are priced more than 4G devices. ASP played the top in Apple's favour.
Sales of premium smartphones carrying over $400 ASP service increased 24% last year and accounted for 27% of total smartphone shipments. Apple has been the biggest beneficiary of the growth in premium smartphones, capturing 60% of that market in 2021. As it turns out, Apple has dominated the smartphone sales charts all over the world, from North America to China, India, the Middle East and Africa.
The company captured 44% of global smartphone revenue of $448 billion thanks to strong demand for its 5G iPhone 12 and iPhone 13 phones. What's more, iPhone ASP rose 14% last year to $825, outstripping overall growth in smartphone ASPs in 2021.
In simpler terms, the ASP of top smartphones in the 5G era helps Apple draw more consumers into its fold, which bodes well for the future as there is still plenty of room for 5G smartphone penetration to increase. This is because 5G models accounted for 40% of total smartphone shipments last year compared to 18% in 2020. The stronger adoption of 5G networks should increase Apple's scalable chances and give iPhone sales a significant boost in the long run. Let's see how.
Stronger iPhone returns are imminent
Strategy Analytics estimates that Apple shipped 228.4 million iPhones last year, 84% of which were equipped with 5G technology. This translates to 192 million iPhone 5G shipments, giving Apple a 31.1% share of the total 5G smartphone market.
By 2025, 5G smartphones are expected to account for 69% of the total smartphone shipments of 1.54 billion units. That would translate into annual 5G smartphone shipments of 1 billion units in 2025. If Apple continues to maintain its current 5G smartphone market share by then, annual 5G iPhone shipments could easily exceed 300 million units — more than more than 50% from last year.
However, it would not be surprising to see Apple increase its share of the 5G smartphone market thanks to the new iPhone SE, which is expected to attract more customers into the company fold. But even if Apple sold 300 million 5G smartphones in 2025 at an average selling price of $800 (which is the price of the standard iPhone 13 model), its iPhone revenue could increase to $240 billion in three years. That would be 25% higher than iPhone's fiscal 2021 revenue.
In addition, investors should not forget that the increase in the installed iPhone base will also give the high-margin services business a chance in the arm. All of this explains why Apple's earnings are expected to achieve 15% annual growth over the next five years, compared to just 8% annual growth over the past five years. But it wouldn't be surprising to see the tech giant do better with its pricing power in the 5G smartphone market and the growth of the services business, making the stock worth buying right now - a price-to-earnings ratio of 28 is a discount to Nasdaq 100A multiple of 33.5.
This article represents the opinion of the author, who may disagree with the "official" recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it's our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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