Market Overview

Apple-As-A-Service: The Fruit's Recipe For $1 Trillion Market Cap

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Apple-As-A-Service: The Fruit's Recipe For $1 Trillion Market Cap

Apple Inc (NASDAQ: AAPL)’s stock has always traded at a relatively low multiple for such a profitable company. The stock’s current PE ratio sits at just 10.4.

Bernstein analyst Toni Sacconaghi believes he knows why the market discounts Apple and has a creative potential solution to unlock value. According to Sacconaghi, the market is wary of Apple because it's in the hardware sales business. Hardware comes with an inherent list of long-term threats, including elongating replacement cycles, falling prices and shrinking margins.

Instead of relying on customers to make a single $720 hardware purchase every two years, Sacconaghi thinks Apple should think more like Netflix, Inc. (NASDAQ: NFLX).

“Along these lines, we explore an intriguing proposal in this note: what if Apple offered its products to customers not as a set of stranctional products, but as a bundled monthly service (i.e., Apple-as-a-Service)?” he asks.

Related Link: 5 Cognitive Biases That Are Killing Your Investment Returns

Sacconaghi argues that investors are already fearing saturation of the iPhone market, a phenomenon which led to the downfall of Motorola Solutions Inc (NYSE: MSI), BlackBerry Ltd (NASDAQ: BBRY) and Nokia Corp (ADR) (NYSE: NOK).

Sacconaghi calculates that the cost of owning and using an iPhone currently averages out to about $3/day. He believes Apple customers could ultimately get more services from an Apple subscription bundle at less of a monthly cost than their cable/Internet bills.

If Apple could successfully make the transition to a subscription model, Sacconaghi predicts the stock could eventually re-rate from an 11x multiple to a 28x multiple, providing massive additional upside.

Bernstein has an Outperform rating on Apple and a $135 price target for the stock.

Disclosure: the author holds no position in the stocks mentioned.

Latest Ratings for AAPL

DateFirmActionFromTo
Feb 2020Canaccord GenuityMaintainsBuy
Feb 2020BarclaysMaintainsEqual-Weight
Jan 2020B of A SecuritiesUpgradesHoldBuy

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings

Posted-In: Apple-As-A-Service Bernstein iPhone Toni SacconaghiAnalyst Color Top Stories Analyst Ratings Tech Best of Benzinga

 

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