Is Apple Inc. a Buy?
Even though Apple (NASDAQ: AAPL) recorded record revenue and earnings per share (EPS) in the first quarter of 2018, questions remain about the company's long-term prospects.
That's at least in part because the company has struggled to create a hit product since it released iPhone in 2007. Of course, that's a very high standard as Apple Watch and Apple TV would be considered successful products at most companies.
Apple has created a very high bar for itself. That at least raises the question as to whether investors should buy shares in the company or whether its best days are behind it.
The numbers look good
On a purely numerical basis, Apple has been killing it. The company posted Q1 2018 revenue of $88.3 billion, a 13% increase over the same period a year ago. Earnings per share (EPS) were up over 2017 as well climbing 16% to $3.89.
There is a reason to be concerned
While Apple isn't a one-product company, it does rely heavily on iPhone. In fact, in Q1 iPhone-related revenue accounted for just under 70% of the company's total revenue, up from about 55% in each of the previous two quarters, according to a Statista chart.
Can iPhone be toppled?
There was a time, before the iPhone, when BlackBerry (NYSE: BB) had a stranglehold on the business smartphone market. That dominance was toppled partly by the iPhone, but largely due to BlackBerry being oddly complacent in failing to respond to the competitive threat the iPhone posed by pivoting toward a more consumer-friendly device. You could make the same argument, albeit to a lesser extent, about Microsoft (NASDAQ: MSFT) being passive in allowing both iOS and Android to supplant Windows.
BlackBerry still exists, but it has largely exited the phone market. Microsoft made some changes, most notably in shifting its software dominance toward a cloud-computing-based model, and in doing so stopped acting like it was the only game in town. It has since regained its place as a tech leader.
Apple is not BlackBerry
Apple has never had a monopoly in the phone space. As popular as iPhone has been, it has always shared the market with top-tier phones from Samsung. In addition, Apple has mostly ignored the middle and bottom of the market, aside from serving the middle by keeping older phones on sale at lower prices.
Because Apple has always had to compete, it has never gotten complacent. It has steadily improved the iPhone, adding innovations like the Siri voice assistant, better screen resolution, faster processing, and wireless chargers.
Nothing the company has done since the iPhone came out has been revolutionary, but its evolutionary steps have protected its market share. That's not as sexy as changing how the world communicates -- which you can argue the iPhone did -- but it's a steady business model.
Is Apple a buy?
While the iPhone may someday befall a BlackBerry-like fate, that does not appear likely to happen anytime soon. Apple has kept pace and served its market well while growing new businesses in Apple TV, Apple Watch, and iPad.
None of those products can reach the heights of iPhone, and Apple's HomePod digital assistant seems likely to serve a similar niche. Still, with iPhone's market share likely to stay steady or even grow slightly for the next few years, Apple should remain a buy.
The company has not hit a home run in a while, but it has retained a loyal following that's growing. That should allow it to retain its place in the market even if a major shift in the phone market occurs.
iPhone is the present and the near future. The long-term future may be something else, but it's very likely Apple will be able to either lead the way or follow along very closely.
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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Daniel B. Kline owns shares of Apple and Microsoft. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.