Apple on Track to Become First Trillion-Dollar Company

Apple Inc. (AAPL

Apple Inc

) is on track to become the first trillion-dollar company in the stock market, according to RBC Capital’s Amit Daryanani and Amitesh Bajad. In a note earlier today, the analysts wrote that Apple’s latest iPhone release will set the company’s stock up for the necessary gain.”From a near-term perspective, we would note historically AAPL stock has done rather well into product launches with median return 90 days prior to launch at 15.6% (median outperformance vs. S&P 500 at 10.9%). This, we think, sets up AAPL well heading into the product cycle this time around,” the analysts wrote. RBC currently has an Outperform rating on the stock with a price target of $176. At that level, the Cupertino, California-based company would have a valuation of $910 billion. The analysts attributed Apple’s future growth to strong gross margin performance and better trends in mainland China. (See also: Apple’s Q3: Investors ‘Sit Back and Wait’ on iPhone 8 Bombshell.)

According to reports, Apple plans to release three iPhones later this year. With an expected price range of between $900 and $1,100, two of the three iPhones are expected to be more expensive compared with previous versions. In a note earlier this year, analyst firm Goldman Sachs estimated that Apple’s margins will receive a middling to substantial boost of between 2% and 6.3% from the “hardware premiumization” trend. (See also: Apple’s $1,000 iPhone 8 Seen Fueling Stock Price.)

Apple has reported disappointing sales in China for the past couple of quarters. Most analysts believe that this is because the company is viewed as another smartphone hardware company there and has been beaten to the punch by cheaper vendors. However, the company is reportedly changing its strategy and boosting its presence in the smartphone services market in China. It has discontinued services and removed offensive apps from its iTunes store. Apple has also invested in R&D centers in the country and kowtowed to the Chinese government’s requests. The results are showing. Even as revenue from its hardware sales in the region declined, the company reported that sales from China’s App Store exceeded those of its U.S. counterpart this past quarter. (See also: Apple Names First Managing Director for China.)

RBC Capital has set a time frame of 12-18 months for Apple to reach the $1 trillion valuation target. In an interview earlier this year, Warren Buffett similarly voted for Apple to reach the trillion-dollar milestone soon. (See also: Is Apple an Undervalued Bank?.



How Apple could become a $1 trillion company

Apple reported its earnings this week, and with a surprisingly positive report the shares spiked again as Apple signaled a potential huge iPhone release.

With that jump, Apple’s market cap is now over $800 billion. This year alone, shares of Apple are up almost 35%. If Apple’s promise plays out — or exceeds — what Wall Street hopes for the September quarter, we may soon be asking ourselves whether or not Apple really will fulfill the promise of a company that could hit a market cap of $1 trillion. The company is of course one of a very long list of companies benefittings from a massive run up in the public markets, but there is still quite a bit to do.

With a potentially huge quarter on the way, a cash pile of hundreds of billions of dollars, an ever expanding line of products and a ton of good will heading into the back half of the year, we may see that question answered sooner rather than later. So let’s run through a couple key factors that Apple is going to have to address if it’s going to hit that largely symbolic but massive milestone nonetheless.

Get a blockbuster iPhone out

This is an obvious one. Apple’s core business is the glass slate in your pocket. It’s how you interact with the Internet, with every online service, and your core communications channel to the rest of the world. But even as we potentially move toward an end point for the smartphone — as in, if we’ve potentially already perfected the form factor and use case — Apple still has to come out with a fresh look and design.

Apple has the luxury of a consistent customer base and can wait while other companies discover new user experiences that it can wrap into the phone and then adopt the best of those. You could argue that, prior to iOS 7, Apple didn’t explicitly need to overhaul the interface into something with a more modern look. It didn’t have to ditch the green felt in the Game Center. But customers still crave new as both a status symbol and a feeling of new novel user experiences. Apple was arguably behind in the people-like-big-phones movement, and then when it finally caught up it unlocked an insane amount of customer demand that delivered some of the company’s best quarters in its history.

This feeds, critically, into the second point…

Lock people into buying the iPhone as a “hub” with an expanding portfolio of edge products

We’ve started to see a lot of moves by Apple to expand into new product categories like the Apple Watch. But with the emergence of newer products like the HomePod and the AirPods, it seems more and more likely that Apple could morph into a company with a portfolio of niche products that keep people locked into iOS. All of these products are powered by your phone, and as more and more of the computational user experience moves into a distributed environment — voice, wrist and such — Apple can make a very strong case for the iPhone as the hub of this universe of distributed products.

That, like everything else, forces lock-in as people have to buy the hub. The iPhone continues to become more and more powerful, but even with redesigns and upgrades, it’s still a multi-functional glass slate. New user experiences are starting to blossom into a movement that could change the way we interact with the Internet. But again, you still need to own the hub, and the hub is Apple’s core business.

Grow those incremental edge businesses, even if they’re niches

While Apple will probably always be a phone company, each incremental product that’s able to operate at a profit by nature will expand Apple’s value. Altering the calculus of the company’s operations (going from a “phone” company to an “everything internet” company) will require a reassessment of how to value it. Google, for example, at one point jumped ahead of Apple to become the most valuable company in the world but more or less has returned to the reality that it’s an advertising company and hasn’t shown the promise of becoming something more full-stack in terms of how we interface with the internet just yet.

Amazon, Google and company are all working to pick off niches of this area. Amazon is where you buy things, and you can do so with your voice (with the added benefit of asking questions). Google is where you search for things. Microsoft is, well, Microsoft, and so on and so forth. While Google is the arbiter of Android — which powers most devices on the planet — it’s not really in the same scope as Apple which is uniquely a device company. Each additional device or service, which creates that positive feedback loop of locking a user further and further down its rabbit hole, has the opportunity of adding incremental value to the company.

Services can become a Fortune 100 business, but the success of the HomePod (and its seeming perception as a speaker before an interface) would be like adding a Sonos. Apple can choose to try to own the full stack of content, music or other experiences from the actual human sensation to where it’s stored on the Internet. The company will always be gauged differently and will probably always be greater than the sum of its parts (in this case, the sum of the niches). But, each of those successful niches will create additional value regardless.

Build out a massive services business that surprises Wall Street

Apple has a huge edge here because it’s able to basically will content deals into existence. One of the great things about building this kind of a business is that it can be wildly consistent and continue to grow methodically. Certain elements can be hits-driven, such as original content, but Apple has so much power and weight that it can strong-arm exclusive music deals. Facebook was able to create a massive messaging ecosystem with Facebook Messenger by simply funneling people to the app, and Apple can do the same with products like Apple Music.

Consistent is good. Very good. It means that even when Apple might stumble on certain quarters it can generally rely on that amount of revenue — or income — to buoy its results. You can look at Amazon as an example case, where its retail business has some of the tightest margins in the universe but its server business continues to be very efficient at generating actual profit for the company. With that, Amazon could basically point to it on an earnings report and explain that it can have a portfolio of business lines that can in the future become billion-dollar-plus revenue streams.

Apple likes to say that its Services business will be the size of a Fortune 100 company soon enough. That’s not out of the realm of possibility, as every developer has to build for the App Store and Apple is able to get out these additional services like Apple Music that it has always executed well. If this business continues or begins to outperform, it’s an incremental addition to the company.


Your Company May Soon Pay More for This Key Software

Many Fortune 500 companies will probably pay more to use Atlassian software starting next month, but it’s sort of hard to tell given the complexity of the newprice model outlined in late June.

While these Atlassian (TEAM, +0.31%) products—like Jira for tracking bugs and Confluence collaboration software—may not be name brands to non-IT pros, they are a big deal to software developers. And because most companies now build and maintain at least some of their own custom software, this price change is worth noting.

An example: Right now, a team of 26 to 50 people pays $3,000 per year for a cloud version of Jira. Starting July 31, 2017, that same team will be on the hook for $3,500 per year. Under the current plan, once a team hits the 51-user mark, it paid $4,500 per year. Now that bill will be $7,000.

With these changes, Atlassian, which went public two years ago, will offer what tech news site The Register called a “mind-muddling” 17 tiers of annual pricing. It is hardly the only software company to offer a dizzying array of price points. As cynics often point out, there is often money to be made in complexity.

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For those paying on a monthly basis, Atlassian is moving to per-user pricing at least after the first 10 users which can use the product for $10 per month flat fee. But once an 11th person is aboard, the price will jump to $77 per month (at $7 per user per month).

In its post, Atlassian characterized that $10 flat fee for up to ten users as its introductory rate. The company’s Jira Service Desk price will still carry a $10 flat fee covering three agents, the people assigned to handle support tickets. Atlassian also offers versions of all these products that can run on a customer’s own servers.

Atlassian claims many name-brand customers including Cerner (CERN, -0.89%), DocuSign (DOCUSIGN), Rockwell Collins (COL, +1.49%), and NASA.

Related: Atlassian Goes All In With Amazon Cloud

Atlassian became a bit more familiar to workers outside software development early this year when it announced plans to purchase Trello, a popular workforce collaboration application, for $435 million. There were no price changes listed for that product.

Fortune contacted Atlassian for comment and will update this story as needed.

Note: (July 10, 2017 11:11 a.m. ET) This story was updated to note that the Atlassian blog outlining the price changes posted in late June and that the company also offers on-premises versions of these software products, the price of which was unaffected by these changes.