Market Overview

Apple's Huge 'AaaS' Opportunity

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Apple Inc. (NASDAQ: AAPL) shares were up on Tuesday morning on the back of positive Goldman Sachs commentary, but have since fallen into the red. While the majority of Goldman's thesis discussed consumer purchase intentions and iPhone sales, the analysts also discussed an interesting new acronym: "AaaS," or "Apple-as-a-Service."

Market Viewing Apple As A Hardware Stock

Goldman said it expects AaaS to becoming an increasingly important theme in 2016. At its current valuation, analysts think the market is valuing Apple as a "hardware stock" with "a transactional model with limited recurring revenues and with visibility that extends only to the next product cycle."

This view may be flawed, however, as Apple continues to shift its business model toward consumer monetization across multiple verticals. "We expect shares to rerate higher as the shifting business model becomes increasingly apparent," Goldman wrote, and its bullishness is evident in its $155 price target.

Related Link: Apple iPhone Demand 'Deteriorated' In Holiday Quarter, New Goldman Survey Says

A Shift Could Be Coming

Apple Music's size (about half that of Spotify), a potential acquisition of Time Warner's media spinoff and Apple's interest in NFL game rights are all recent examples of the company's focus on media consumption within its ecosystem -- the heart of the AaaS opportunity.

"These examples all point to a shift toward more media consumption from the Apple ecosystem, which, if successful, will likely increase the stickiness of the installed base, helping to re-rate the stock as a recurring model." If Goldman's thesis is correct, this shift toward an Apple-as-a-Service model could warrant the 15x forward earnings multiple the firm projects within 12 months.

Here's a look at Apple's valuation over the past five years -- note it's currently far below Goldman's target.


Latest Ratings for AAPL

Jan 2017BarclaysDowngradesOverweightEqual-Weight
Jan 2017OTR GlobalDowngradesNegative
Jan 2017GuggenheimInitiates Coverage OnBuy

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