Apple CEO Tim Cook is no stranger to making headlines.
Just this past March, Cook revealed that the company was actually growing by 50 percent a year, a stunning growth rate that had many wondering how Apple could sustain the massive revenue increases that come with a $1 billion valuation.
Cook went on to claim that Apple is on pace to break even on its current valuation of $1.2 trillion.
Cook’s claims were based on projections that Apple could potentially break even within three years.
Cook is clearly on track to hit his lofty valuation target, and Apple is definitely in a good place to go.
However, if Cook were to take a step back, he might realize that the growth rate isn’t sustainable.
Cook has always been a staunch believer in the value of “exponential growth.”
Cook’s company has gone from being a $100 billion company in 1999 to being a whopping $1 trillion in 2021.
When Apple started out as a $50 billion company back in 1999, Apple made $10 billion in revenue per year.
Since then, Apple has gone on to generate a staggering $1,800 billion in annual revenue.
If Apple were to sustain its $1-billion valuation for a full year, the company would still have a net loss of $12.7 billion.
If Cook were willing to see the company grow by another 50 percent, Apple would actually lose $7.9 billion in a year.
This is where things get interesting.
Apple is currently profitable, but if it can only generate $7 billion in gross profit over the next year, then it would be left with only $8 billion to work with.
To make matters worse, if Apple had to take the full $12-billion hit in gross revenue and still have to invest $8.5 billion in cash, Apple might actually have to spend $11.2 billion in total, and that could mean a massive cash crunch for Apple.
While Apple is still on track for a net profit of $11 billion in 2021, the fact that it would actually have a hard time maintaining that figure means that Cook would likely be looking at a drastic reduction in the company’s profitability.
To put this into perspective, Cook would have to see Apple have to earn $15 billion in the same year to keep up with the growth.
Cook has already said that Apple will only generate an operating profit of around $8-$9 billion this year.
If Apple is able to grow to a $15-billion operating profit, then Cook would be forced to cut spending, cut expenses, and perhaps even raise taxes.
Cook is certainly making a smart bet.
He knows that Apple has the potential to become a billion-dollar company.
If he could simply focus on driving profits up and reinvest that into expanding the iPhone and iPad ecosystem, he could be in a much better position to achieve his lofty goals.
If the growth slows down and the company is unable to generate another $9 billion profit, Apple could still be able to continue to grow and grow and make some money.
If it can’t, Cook will likely have to lay off millions of employees and cut back on some of his spending.
This all sounds very bleak for Apple, and it seems like Cook might not be willing to let Apple’s growth be put into question.
But even if Cook ultimately decides to hold onto his $1 Billion valuation, it could also be very beneficial for the company.
It could allow Apple to keep more of its own money, and if it doesn’t, Apple’s revenue growth could slow significantly.