<p>There are some images we have of technology companies and of the business they are in. But there are often surprises when you look at their results – products that may seem like a smaller sideline actually contribute significantly to their profits. These lesser-known products and divisions can significantly affect the performance of technology stocks.
An example is Logitech (NASDAQ: LOGI). People know the company as a manufacturer of accessories for personal computers, such as mice and keyboards. But these accessories are not the only thing driving the company’s growth – up 170% since 2016.
Logitech also owns brands that are popular with music-loving consumers, a “sideline” that has helped it take advantage of the rise of streaming music. This “sideline” features one of the most popular Bluetooth portable speaker brands: Ultimate Ears. And in 2016, Logitech acquired the leading wireless earphone brand Jaybird.
In 2019, portable speakers, earbuds and audio equipment brought in more than $ 500 million, over 18% of LOGI’s total annual revenue.
Here are three other technical stocks that make money in a surprising way.
Tech Shares: Amazon (AMZN)
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Ask the average person how Amazon (NASDAQ: AMZN) makes money and the answer is likely to be online retail. They can look around their living room and add Alexa-powered Echo smart speakers to the mix.
There is no argument that Amazon.com generates a lot of revenue. Online sales for the e-commerce giant reached $ 141.3 billion in 2019. And in a smart speaker category that has grown rapidly for several years, the Amazon Echo still has a leading 70% lead in US homes.
But it’s a division behind the scenes that actually accounts for the lion’s share of Amazon’s profits. Amazon Web Services (AWS) is a cloud computing company that provides the processing and hosting features that make Amazon.com and Alexa buzz. It runs some of the world’s most popular apps, websites and services, including Netflix (NASDAQ: NFLX).
AWS has also become a primary driving force for the Amazon share and generates over 70% of the company’s total profit.
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HP (NYSE: HPQ) was created in 2015 when Hewlett Packard was split into two companies. HP focuses primarily on computer and printer sales. In 2019, it was the world’s second largest PC supplier, with 23.9% of the global market.
However, the big profit driver for HP is not computers. These are not printers that are often sold at cost or even loss. These are high-margin printer inks.
Computers can generate revenue, but printing (and especially replacement ink cartridges) has accounted for 80% of HPQ’s profits.
With that profit stream under pressure, HP has struggled to block the use of third-party replacement cartridges. It is also reportedly being considered to raise the price of the printers themselves.
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Everyone knows that the iPhone is Apple’s (NASDAQ: AAPL) major revenue and profit machine, even though it has recently run out of steam. Falling smartphone sales have been a concern for many tech stocks in recent years.
Apple has other product lines to increase revenue, including Apple Watch and services such as Apple Music.
What you may not realize is how big a company AirPods has become for the company. The white wireless earbuds with the strange stem have become an incredibly popular accessory. With several generations including the latest AirPods Pro on the market, Apple is expected to sell 85 million pairs by 2020. That’s about $ 15 billion in revenue.
An analyst did the math and estimated that if AAPL abolished AirPods for its own business, the resulting company could have a value of $ 175 billion. It would be one of America’s most valuable companies and claim a place around 30.
It’s not bad for a “sideline” that was mocked at release.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a leading contributor focusing on consumer technology for Forbes since 2015. At the time of writing, Brad Moon held no position in any of the above securities.