Apple Inc. AAPL enjoys ecosystem dominance among the world’s wealthiest smartphone owners and has been focusing on products and services that reduce churn and drive ecosystem lock-in, according to Needham.
The Apple Analyst: Laura Martin maintained a Buy rating on Apple and raised the price target from $350 to $450.
The Apple Thesis: Apple’s platform aggregates 950 million of the wealthiest consumers worldwide, Martin said in a Wednesday note. (See her track record here.)
Services and wearables enhance Apple’ ecosystem lock-in and boost revenue per user, the analyst said. These "brand-extension" categories encourage users to remain in the Apple ecosystem longer, driving lifetime value, she said.
Martin estimates that each unique user will add nearly $2,000 to Apple’s gross profit, of which only 38% will be contributed by iPhone sales. The bulk of the company’s LTV is attributable to the following, the analyst said:
- Services revenue, which is both recurring and high-margin
- Ancillary product sales
For the six months ended June 28, Services generated $26 billion in revenue and Ancillary Products generated $39 billion. Combined, this added 80% to Apple’s standalone iPhone revenue and more than doubled iPhone revenue in the last three months, she said.
Martin also named Apple’s strong balance sheet, free cash flow and share buybacks as reasons for the price target revision.
AAPL Price Action: Apple shares were up 0.77% at $391.23 at the time of publication Wednesday.
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Photo courtesy of Apple.
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