When it comes to Apple Inc. (NASDAQ:AAPL), most of the focus tends to be on iPhone sales, but every now and then, an analyst reminds us that there’s more to the pie than just the iPhone. This time Credit Suisse analysts are reminding investors that they may be underappreciating Apple Services and how much they can boost the iPhone maker’s top and bottom lines.
AAPL price target to $150
Analyst Kulbinder Garcha and team said they’ve increased their price target on Apple Inc. (NASDAQ:AAPL) stock from $140 to $150 per share and provided in-depth analysis on the company’s services offerings. They believe that the company’s services could see their gross profits more than double by 2020. They estimate that services gross profits have skyrocketed from $3.2 billion in 2020 to $14.5 billion now, representing 15% of the total group.
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Their analysis suggests that gross profits for the segment could climb to $33.7 billion and make up 29% of gross profits by 2020 on the back of three main drivers.
Apple benefits from huge install base
Garcha and team note that AAPL currently enjoys an installed base of more than 1 billion active devices and nearly 600 million “highly affluent” and “transacting” users. In fact, Apple’s users make up 66% of mobile commerce and spend seven times more than Android users. Second, they expect that users will each spend $113 per year on Apple services five years from now, compared to the current per-user spend of $61. They note that current uptake from the growing number of offerings will benefit from Apple Pay, Apple Music and iCloud growth and that
Third, they see opportunities in TV and video opening up for Apple Inc. (NASDAQ:AAPL) at some point in the future, although they acknowledge that the company will have to face some challenges in this area. Among the options they see in media are “organic or piecemeal options,” which they define as “smaller deals for content acquisition/ creation” or “larger bold options in the form of acquiring Netflix.” They do admit that it’s highly unlikely that Apple will acquire Netflix but call the idea “an interesting route.”
They also estimate that about 55% of long-term gross profits from services could be annuity-based due to the growth not only in services but also the addition of the iPhone upgrade installment plans.
AAPL stock edged higher by as much as 1.01% to $111.10 per share in afternoon trading today.