Apple’s pivot to a subscription-like model creates a clear path to a market capitalisation of more than US$3-trillion, according to Morgan Stanley.
While the market still tends to value the iPhone maker as a hardware company, shifting to a “lifetime value” approach — which takes into account recurring revenues from services — suggests long-term upside to over $200/share, or more than $3-trillion in market value, Morgan Stanley analysts wrote in a note. Apple shares closed at $153 on Wednesday.
“The Apple business model is shifting from one that maximises hardware shipment growth to one that maximises installed-base monetisation,” analysts led by Erik Woodring wrote. The tech giant’s increasing disclosures on services revenue and the installed user base, and its move away from reporting iPhone units, is evidence of the shift, they added.
Woodring, who rates Apple overweight, said that his lifetime value model assumes that Apple users will spend $2/day on Apple products or services, a figure already achieved by US iPhone owners. The current stock price implies a material valuation discount to other tech platforms and software-as-a-service businesses, he said.
Apple briefly hit $3-trillion in market capitalisation on 3 January. Shares have fallen 16% since then amid a broader rout for technology stocks, with a combination of higher interest rates and fear of a possible global recession spooking investors. — Subrat Patnaik, (c) 2022 Bloomberg LP
