This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Apple Inc. (NASDAQ: AAPL) is in a near duopoly with Samsung in one of the world's most addictive products: smartphones. Combined, the two account for over half the global smartphone market. In the U.S., however, the iPhone commands about 50% of the market.

Warren Buffett, one of Apple's largest shareholders and most prominent cheerleaders, believes Apple is the best business he knows in the world. Throughout the iPhone's upgrade cycles, Apple has consistently improved its design and functionality to meet ever-changing consumer tastes. Perhaps most importantly, the iPhone's camera gets better with every new version. iPhone users can quickly snap the highest-quality selfies and videos of their kid's soccer games and post them to social media in a heartbeat.

Referring to lines of iPhone loyalists who wait outside Apple stores in advance of its new releases, Buffett's right-hand man Charlie Munger quipped: "I've got zillions of friends who'd almost part with their right arm before they'd part with their iPhone. That's a hugely powerful position to be in."

But it's more than just the iPhone that's keeping people entrenched in the Apple ecosystem.

Why Apple's iPhone is a "sticky" product

Buffett has referred to the iPhone as a "sticky" product, meaning customers repeatedly return to Apple's smartphones. Aside from the iPhone's design appeal, users like the brand because of its add-on services. iPhone users can purchase additional iCloud storage, download music from the Apple Music app, and conduct touchless payments with Apple Pay. And if iPhone users wanted to switch to a competitor, they might have to abandon precious data stored in their iCloud or reenter their cards on a new payment platform.

The tiny fees customers gladly shell out for these widely used services may seem like small potatoes for the behemoth company, which has a market cap approaching $2.5 trillion, but the financial impact may surprise you. Because these services are digital, there is minimal additional cost when an iPhone customers add a service. That means every new dollar in revenue Apple receives from its service is more profitable than the last.

Apple generated  $32.7 billion of revenue from its services in 2017, when it first disclosed the segment's results. The gross margin on its service revenue that year was  55%. By 2021, service revenue had doubled to  $68.4 billion, and gross margin had leaped to nearly  70%.

Apple's services business has plenty of room to keep growing. For example, only about 75% of iPhone customers have activated Apple Pay, and many haven't begun to use it. Yet Apple Pay has already overtaken Mastercard Incorporated (NYSE: MA) in transaction volume over the last 12 months. As users continue to adopt Apple Pay and download new music, Apple's services segment can become a larger part of the overall business, which has grown from about 20% of overall gross margin in 2017 to over 31% last year.

Where will Apple be in five years?

Apple has a huge advantage over many companies in that its increasingly profitable service segment is also its fastest growing. After you factor in that the segment also makes iPhone users more loyal to the company, you can see why Buffett loves the company.

AAPL Shares Outstanding data by YCharts

Another reason Buffett likes Apple is its share repurchases. The company has religiously retired shares over the last 10 years, which increases the percentage of the company existing shareholders own. Similarly, repurchasing shares en masse also increases its earnings per share, all else being equal.

When you combine Apple's business advantages over other companies with its ability to retire shares at a prodigious clip, you have a stock that has a high probability of outperforming the market over the next five years. Investors are wise to follow Buffett's lead, considering he bought more shares in the first and second quarters of this year as the stock retreated from its 2021 highs.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Apple be in 5 years? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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BJ Cook has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Mastercard. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple and Mastercard. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

New York Stock Exchange operator Intercontinental Exchange (NYSE: ICE) knows a few things about investing. The company has booked monster profits from two crypto investments and is now investing in another area of its business. This time, the company could change the game in the giant mortgage industry. Here's what happened.

What's next after crypto?

In December 2014, before anyone had ever heard of Bitcoin, Intercontinental Exchange invested $10 million for 1.4% ownership of a little-known crypto exchange called Coinbase Global (NASDAQ: COIN). The exchange was firmly entrenched in the crypto frenzy years later. Though it was almost unnoticeable at the time of its investment, it eventually sold its stake when Coinbase IPO'd in April 2021 for a mind-numbing sum of $1.24 billion.

Intercontinental Exchange's Coinbase investment foreshadowed another crypto-related investment. Bakkt (NYSE: BKKT) was initially launched in 2018 with majority backing from Intercontinental Exchange. The company was formed to provide digital wallets to institutional and consumer users to buy, sell, and spend digital assets. Of course, digital assets include crypto but also extend to airline miles, hotel loyalty points, and credit card points.

In late 2021, Bakkt merged with VPC Impact Acquisition, a special purpose acquisition company (SPAC) sponsored by Victory Park Capital, and the shares went public in October. In its annual report a few months later, Intercontinental Exchange booked an astonishing $1.4 billion gain from the transaction. Unlike its Coinbase investment, though, the exchange still holds its stake in Bakkt because it sees a future in digital currency, even if it doesn't include cryptocurrency.

More recently, however, the SPAC has made a more significant investment in the mortgage tech company Black Knight (NYSE: BKI). In May, Intercontinental Exchange announced it had agreed to acquire Black Knight for $85 per share, implying a market value of $13.1 billion. Prior to the acquisition, the exchange had a competing mortgage tech business.

Intercontinental Exchange's mortgage tech business provides software for loan officers, mortgage origination, closing, funding, and compliance. Black Knight's mortgage tech business overlaps in origination and expands the combined company's capabilities to multiple listing service (MLS) solutions and loan servicing. In addition, Black Knight is a leading data analytics provider in the real estate market.

Before the agreed tie-up, Black Knight made a significant mortgage tech investment of its own. In February 2022, the company completed a deal to acquire the remaining shares of Optimal Blue that it did not already own. Optimal Blue's mortgage tech business provides a software suite that aids its customers in carrying out secondary transactions in the mortgage market. Ironically, Black Knight funded part of the deal with 37 million shares of Dun & Bradstreet Holdings it owned from a previous investment.

Altogether, the complementary capabilities of the mortgage tech companies provide one of the first end-to-end software packages on the market. On top of that, the combined company will have a mountain of real estate and mortgage data it can use to bolster its data and analytics business.

Intercontinental Exchange points out that the average origination costs have ballooned from about $4,000 in 2009 to $9,000 in 2021. The company believes the new mortgage tech segment can shave off $2,600 -- nearly 30% -- of those costs. Savings at that level make hiring Intercontinental Exchange a very compelling proposition, especially considering the massive number of originations some banks and mortgage companies do.

Is Intercontinental Exchange a buy right now?

The Intercontinental Exchange/Black Knight mortgage tech portfolio is a compelling reason to get excited about the stock. The mortgage portfolio adds to the exchange's existing exchange segment consisting of 13 regulated stock and commodity exchanges, including the New York Stock Exchange and six clearing houses.

The Black Knight deal is not expected to close until the first half of 2023, but Intercontinental Exchange expects the accretive to its earnings per share in the first year after the deal closes. In addition, the deal should cut expenses by $200 million and provide $125 million in revenue synergies.

The company's stock is down about 19% this year because rising mortgage rates could potentially slow down the real estate market and crimp fees earned from mortgage originations.

If you're worried about the same things, consider that Intercontinental Exchange projects recurring revenue in its mortgage tech segment will increase from 50% of its revenue mix to 70% after the Black Knight acquisition. The stock's fall could represent an outstanding opportunity for long-term investors.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post This company profited $2.6 billion from crypto. What is it investing in now? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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BJ Cook has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin and Coinbase Global, Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.