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.

Keep Wall Street off its back

This is going to be a small sticking point as Apple is going to perpetually be a massive target for investors. Most won’t be successful in forcing the company to alter its strategy, but it is not unprecedented. Activist investor Carl Icahn pressured Apple to return more of its massive (and still increasing) cash pile to investors back in 2013.

These little piecemeal tributes are important when it comes to investors, as even the long plays are still looking for some kind of incremental returns over time. That can come in the form of stock repurchases and dividends, which offers investors an opportunity to capture some of the value of an increasing stock price while they watch it continue its march forward.

To hit $1 trillion, Apple is probably going to have to excel at every single one of these. The notion of adding $200 billion to its market cap isn’t outlandish, but it’s going to be a huge undertaking to do so. Apple’s stock jump earlier this week may have just been a setup for the next quarter — which could end up performing exactly as expected and halting that rise. It has to either continue to add valuable businesses to its portfolio or force a rethinking of what Apple is as a company and the multiples it gets based on its earnings.

At the end of the day, Apple is still ways off from $1 trillion. And companies across the board could take a nosedive for any number of reasons. But it wasn’t really that long ago when we were asking ourselves whether Apple would become the most valuable company in the world. Its iPhone business stalled and the company entered a holding pattern in the past year or so, but then signaled that it might have a huge next quarter with the next iPhone on the horizon. Basically, there is so much pent up demand from all the leaks and the possible radical redesign of the phone — especially as it morphs into the hub of a user’s Internet experience — that it could help Apple continue its march forward.

Apple became the largest company in the world, and now it’s time to start asking the next question: is Apple really going to become a $1 trillion company? All eyes are on the next quarter.