Are Apple (AAPL) Shares a Buy Following their Event?...READ MORE
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 | | Are Apple (AAPL) Shares a Buy Following their Event? | | Earlier this week, Apple had its biggest conference in years. While some fans of the company were expecting something big—nobody was sure what—the company instead announced a few smaller initiatives.
These new projects include a gaming service, a branded credit card, a news service, and a video streaming service, among others.
The market is still digesting the news. But the takeaway here is a simple one. The company is going where the money is. Not just in terms of revenue, but in profit margins. Currently, Apple is well known for iPhones, iPads and the Mac line of computers. Those physical products have real production costs. The cost of setting up something like a gaming or video portal tends to be moderate. But the cost of selling an additional customer on that service is minimal.
This low marginal cost works well for Apple given the scale and size of its customer base. It's also something the company has been secretly minting money on for years with the iTunes service. The cost of providing additional songs is minimal, but the company can make millions with each popular song it adds.
More importantly, an iPhone or iTune sale is a one-time event. Someone who needs a new phone may not get a new one from Apple. Or they may not need a new one for a few years. It's a very inconsistent pattern at the individual customer level. But by having a streaming video or news service, the company can now generate recurring revenue. This is a popular strategy for many companies. Instead of periodic, but large sales, a company can get smaller, but more consistent revenue from a customer.
When you add in these new initiatives, it's clear that Apple is looking for ways to best increase the revenue it generates from its customer base. For a company that's nearly one trillion dollars in size, even a moderate success from any of these new plans could add billions to the company's bottom line and increase its profit margins at the same time. While some see the company's plans as underwhelming, from a business perspective, it's clearly the right thing to do.
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