GoldmanSachs

Why Apple's revenues grow nearly 3 times faster than its expenses

December 14, 2010: 11:11 AM ET

The key, according to Goldman Sach's new Apple analyst, is how it leverages its platform

Click to enlarge. Source: Goldman Sachs

"Apple's hardware products often capture the hearts of consumer with their innovative and elegant designs, and this has been the case throughout the company's 34-year history. Nevertheless, we believe Apple's tremendous success in its most recent decade has been primarily driven by the evolution of its content and software platform, with the hardware devices serving primarily as platform delivery mechanisms."

So begins Bill Shope's "deep dive" into what he calls the core of the Apple story: its software platform. His analysis of that platform is the centerpiece of the 59-page report he filed Sunday to inaugurate Goldman Sach's renewed coverage of Apple. (See Apple pops on Goldman note.)

Shope was recruited from Credit Suisse to replace David Bailey, who had downgraded Goldman's rating for Apple (AAPL) from "buy" to "neutral" in Dec. 2008 and kept it there for sixteen months while Apple's shares climbed 150%.

Shope seems to have a deeper understanding of what makes the company tick, and he spends much of his long report talking about Apple's growing content and software ecosystem -- how it fuels the company's revenue growth, how it opens up new markets, how it creates "switching costs" that keeps Apple customers loyal, and what it means for Steve Jobs' succession.

The first point he makes is illustrated by the chart above.

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