Apple (AAPL, Financial) made the news this week when its market cap surpassed the magic $1 trillion mark. It’s a historic day not only for Apple but also for the tech sector.
Just recently, I wrote an article on the tech companies I own and unfortunately, I didn’t even mention Apple in that article. As Apple's market cap exceeded the $1 trillion line, I asked myself this question: Why Apple? Or asked differently, what is it about Apple that makes it more valuable than Google (GOOGL), Amazon (AMZN, Financial), Facebook (FB), Alibaba (BABA, Financial) and Tencent (TCEHY, Financial)?
And somehow a potential answer came to me, which sounds obvious, but it’s hidden in plain sight.
The two largest economies in the world are the U.S. and China. But if we look at the U.S. tech giants Google, Amazon or Facebook, China represents less than 1% of revenues. Apple, on the other hand, derives 25% of its revenue from China's market.
China's smartphone market and e-commerce market are both the world’s largest markets. India is the world’s second largest smartphone market in terms of shipment volumes, but the U.S. is the second largest market in terms of value. Apple dominated the high-end smartphone market in the world’s No. 1 and No. 2 markets.
This is quite remarkable. And since we spend so much time on our smartphones nowadays, Apple is also taking share from our valuable time, which means the iPhone is extremely important for everyone in the Apple ecosystem to gain access to large amounts of potential customers. Even Tencent had to fight with Apple for commissions.
For Alibaba and Tencent, most revenues come from China. They have very little exposure to the U.S. market. Again, compared to Apple, they are missing the world’s largest economy and second largest e-commerce market. Apple not only has the home advantage but also a more entrenched customer base in the U.S.
Therefore, among the tech companies, only Apple has a major presence in both the U.S. and China. Again, this sounds obvious now, but I totally missed this when looking into the tech companies a while ago. And hats off to Apple CEO Tim Cook for having done such a great job with China's market.
Of course, this is just one aspect of comparing Apple against all the other tech giants. With tech companies, we shouldn’t just focus on any one area, but instead we should see the bigger picture. And that bigger picture should include China, especially when we think about the future of Google and Facebook. The bigger picture should also include the U.S., which is very important for Alibaba and Tencent’s next 10 years.
Disclosure: Long GOOG, BABA and TCEHY.
