Apple Inc. (NASDAQ:AAPL)’s ecosystem is its strongest advantage over other hardware platforms, according to Morgan Stanley analyst Katy Huberty. In a report issued to investors today, she took a closer look at the iOS platform and how Apple Inc. (NASDAQ:AAPL) could push its ecosystem even further this year.

apple

Expectations For Apple This Year

One of the key takeaways from Huberty’s report today was her expectation that Apple Inc. (NASDAQ:AAPL) will have 600 million users by the end of the year. To come up with that number, she’s assuming that 40 percent of device sales are made to new Apple users this year.

She says currently the company has 500 million user accounts, which is second only to Facebook Inc (NASDAQ:FB). According to her estimations, Apple’s user base grew by about 55 percent last year. Each user account spent an average of $329 last year, which generated $95 of free cash flow. She says that’s far above platforms like Facebook Inc (NASDAQ:FB) and Amazon.com, Inc. (NASDAQ:AMZN).

Apple’s Key To Unlocking Value

Huberty says the key to Apple being able to unlock more value is through new services, and she isn’t the only one. Goldman Sachs analysts issued a report last week highlighting their wish list for iOS 7, and one of the main things they were looking for was new “game-changing” iOS services.

Specifically, Huberty is looking for services like mobile payments, videos, streaming music or an ad exchange—all of which would help monetize Apple Inc. (NASDAQ:AAPL)’s user base even further. She also said she doesn’t see Apple actually owning content for any of these services, but rather, providing platforms which leverage the content provided by others.

Maintaining Apple Estimates

Huberty said they maintained their estimates for Apple Inc. (NASDAQ:AAPL) and their $540 per share price target, although they see plenty of potential upside for the company through new services and products. She said a low-end iPhone will help grow the company’s user base in a way that’s similar to how the iPad Mini already is. She also estimates that every $1 billion of new services revenue contributes $8 billion of valuation, based on the valuation of the company’s peers.

In addition, she looked at Apple’s historical behavior and also Morgan Stanley’s December iTV survey for additional clues about what the company’s stock might do. She said about a third to half of Apple users will likely buy a new product like an iTV or iWatch. That would accelerate the company’s revenue growth and also expand its valuation multiples.