Apple Inc. (NASDAQ:AAPL) caught a big break in 2014 when it partnered with China Mobile Ltd. (ADR) (NYSE:CHL) and other Chinese telecom companies to begin selling its products in the country. During Apple’s last quarter, China accounted for 25% of total sales, or $12.5 billion, which is pretty impressive given that Apple has not had that long to make its mark.
However, with 1.3 billion people living in China, Apple’s addressable market skyrocketed by entering the region. Now that Apple has become a company in search of growth, AAPL stock investors are hopeful that India can be its next China.
Like China, India’s population exceeds one billion. Unfortunately for AAPL, its share of the smartphone market was estimated at just 2% last year.
That’s unacceptable for the world’s most valuable company, but thankfully, Apple recently caught a big break that opens the door for increased market share. India just announced major reforms to its Foreign Direct Investment policies, which will allow Apple to open retail stores in India.
Previously, Apple had formed retail partnerships to sell its products in dozens of cities at hundreds of stores. However, Apple is not a meaningful brand in India, and the country’s policy played a large role in why. Looking ahead, AAPL will have a legitimate shot to do in India what it did in China, and potentially create billions in new revenue for the company.
India Is Not Just a Luxury for AAPL Stock
But, with that said, some of the more logical investors realize that iPhone “s” years don’t have the same consumer appeal as new generation iPhone products. Moreover, logical investors also realize that this year’s struggle for Apple and AAPL stock is very much tied to the comparison of 2015’s record year (and growth) behind the success of its iPhone 6.
Therefore, investors might not see India as a must win for AAPL stock … but it is.
India is where most of the world’s smartphone growth will occur over the next half-decade. Last year smartphone sales in India neared 120 million, and by 2017 sales will surpass the U.S. and top 174 million. While impressive, the growth won’t stop there.
India’s middle class consumer market will reach 580 million over the next 10 years, up from just 50 million last year. As a result, the premium prices of Apple hardware won’t be as big of an issue in India as it has been in the past. And that gives Apple both a tremendous opportunity, but also a tremendous burden to succeed in India to find new growth.
While Apple’s iOS has never been the world’s most used operating system, it is by far the most valuable with far more spending than the competing Android. Thus, India is not only important for the purpose of selling iPhones and iPads, but also getting consumers and businesses onto its operating system.
Bottom Line for AAPL
All things considered, if Apple can penetrate India like it has China, the region could very well be worth $40 billion a year, or more, to Apple.
Next year, Apple is expected to create $225 billion in revenue, and that’s with little relevance from India. Without India, Apple’s annual revenue likely stays around $225 billion, with the potential for low-single digit growth. However, if Apple can succeed in India and add that $40 billion in new revenue, it could do wonders for AAPL stock.
Specifically, AAPL stock would no longer be trading like a no-growth company, at just 10x earnings. It would likely trend towards the 15x multiple it supported back during its faster growing days, like last year when revenue from China was growing so abruptly.
In other words, when you consider new revenue, new profit and multiple expansions, success in India could very well be worth 50% to 75% in AAPL stock gains. Needless to say, India means a lot to Apple stock.
As of this writing, Brian Nichols owns shares of Apple
