Apple Inc. (AAPL): Estimating The Stickiness Of Its Ecosystem

Apple Inc. (NASDAQ:AAPL) undoubtedly has a strong ecosystem which is differentiating and valuable. That’s why Tim Cook calls it a mega-ecosystem. However, it’s quite difficult to quantify the stickiness of users to its ecosystem. One way is to estimate the lifetime customer value. Another way is to calculate ‘market value added per subscriber.’ Apple’s market value has risen about 40% since last year. But its market value added/subscriber remains almost same at $566 as the customer base also increased.

Apple is monetizing its ecosystem very well

UBS analysts Steven Milunovich, Gareth Jenkins and Peter Christiansen tried to analyze the stickiness of Apple Inc. (NASDAQ:AAPL)’s ecosystem and compared it to some media companies. DirecTV (NASDAQ:DTV) has the highest market valued added per customer of $1,430, followed by Dish Network Corp (NASDAQ:DISH) with $725. In contrast, the iPhone maker has the MVA per customer of $515, well above Netflix, Inc. (NASDAQ:NFLX) and Visa Inc (NYSE:V).

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A higher value requires continued monetization of the ecosystem. And it indicates that Apple Inc. (NASDAQ:AAPL) is monetizing its ecosystem very well. Analysts found that Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) and Google Inc (NASDAQ:GOOG) have a lower value due to their poor ability to retain and monetize customers. Apple enjoys a premium even as Android vendors are shipping five times more devices.

Market is giving Apple a healthy valuation

UBS says that the market is giving Apple Inc. (NASDAQ:AAPL) a healthy valuation. The company must support it in two ways. One, by launching new devices. The Cupertino-based company is expected to launch a large-screen iPhone 6 and iWatch later this year. Two, further monetization of customers through new services and expansion of the ecosystem with CarPlay, HealthKit and iBeacon.

‘Market value added’ measure an enterprise’s wealth creation. It is equal to the equity market value less total capital invested by stock and bond holders. Apple Inc. (NASDAQ:AAPL) has 741 million subscribers. Its total market value is $553 billion and the capital invested by stock and bond holders is $171 billion. So, the market value added is ($553 billion – $171 billion) $381 billion. Divide that value by 741 million customers and you get the market value added/customer of $515.

UBS has a Buy rating on Apple Inc. (NASDAQ:AAPL) with $100 price target.