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2 Things I Would Do If Were Tim Cook, From The Analyst With A $1 Trillion Valuation On Apple

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2 Things I Would Do If Were Tim Cook, From The Analyst With A $1 Trillion Valuation On Apple
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Bernstein’s Toni Sacconaghi commented in a report that if he were Tim Cook, he would accelerate new product development as well as try to migrate from a transactional hardware revenue model to a subscription-based financial model.

Sacconaghi has an Outperform rating on Apple Inc. (NASDAQ: AAPL), with a price target of $135. He believes the market discounts Apple’s stock because investors are wary of the hardware sales business, which comes with an inherent list of long-term threats, including elongating replacement cycles, falling prices and shrinking margins.

Accelerate New Product Development

Apple has historically spent a relatively small percentage of its sales on R&D and lags the 25 largest market cap technology companies in R&D spending and acquisitions, Sacconaghi stated. He added that Apple should invest in organic and inorganic new product development.

Related Link: Toni Sacconaghi Defends $1 Trillion Apple Valuation Call

“We advocate that Apple pursue more of a portfolio approach than its historical strategy of seemingly investing in and relying on a few "bet the ranch" products, and believe more acquisitions and "moonshots" could be beneficial,” the analyst wrote.

Migrate To Apple-as-a-Service

Sacconaghi believes it would be beneficial for Apple to have a subscription-based sales model. He noted that iPhone users placed “an incredible value” on their devices, while the iPhone is inexpensive compared to their daily consumer expenditures like on coffee, newspapers, wireless service, etc.

Apple should sell its hardware offerings as a subscription service rather than as transactional product sales. Consumers are accustomed to paying for monthly technology utilities, such as cable and internet. Sacconaghi added that several companies had capitalized on the subscription model, citing Netflix, Inc. (NASDAQ: NFLX), Microsoft Corporation’s (NASDAQ: MSFT) Office 365 and Amazon.com, Inc’s (NASDAQ: AMZN) Subscribe & Save, among others.

Apple-as-a-Service would give greater control over replacement cycles and pricing power over time, provided Apple is able to make the service offerings compelling. “We see an Apple OTTP TV service (as well as other bundling with other existing Apple services like Apple Music and iCloud) as important in helping drive the shift,” the analyst added.

Latest Ratings for AAPL

DateFirmActionFromTo
Nov 2017Wells FargoReinstatesMarket PerformMarket Perform
Nov 2017ArgusMaintainsBuy
Nov 2017BernsteinMaintainsOutperform

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Posted-In: Bernstein Toni SacconaghiAnalyst Color Long Ideas Reiteration Analyst Ratings Tech Trading Ideas Best of Benzinga

 

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