New York, Feb 2 (Reuters Breakingviews) – Companies such as General Electric (GE.N) and Goldman Sachs (GS.N) know that producing recurring, stable revenue is a key to raising their stock prices. The same is true for Apple (AAPL.O). Its $2.4 trillion valuation has been boosted by the shift from hardware to less tangible services, which accounted for 18% of its revenue in the latest quarter. However, not all of its pro
ducts are equally valuable.
As Apple has shifted toward more services, its desirability has increased. According to Refinitiv, Apple’s enterprise value in 2018 was equivalent to 3 times projected revenue for the year ahead. Chief Executive Tim Cook oversees a company valued at 6 times sales at $2.5 trillion, including net debt.
To get to the bottom of Apple’s worth, breaking down its individual components is a good approach. Analysts predict that Apple will rake in around $300 billion in iPhone and other sales this year, which translates to an enterprise value of about $1.5 trillion; a figure still significantly higher than the company’s traditional valuation. Removing this from the equation leaves investors pricing Apple’s services business at around $1 trillion or roughly 10 times anticipated revenue.