“Continuing a trend of Apple (AAPL) price target increases, Credit Suisse’s Kulbinder Garcha today reiterates a Neutral rating on the shares and raises his price target to $96 from $85.71, writing that the company’s services are leading to an ‘enviable portfolio of iServices,'” Tiernan Ray reports for Barron’s. “Garcha thinks the offerings ‘combined with its multi-product compute offering, creates a sustainable competitive advantage’ and will allow the company ‘an annuity stream from its valuable 800mn installed base.’ Garcha thinks the most immediate change is that Apple will move heavily to subscription-based music with the recent acquisitions of Beats.”
Ray reports, “Rather than being disrupted, Garcha expects Apple to grab hold of the streaming music trend, bundling it with its devices. ‘We believe Apple is likely to further accelerate the music subscription market’s development via its recent purchase of Beats Music. Apple has an iTunes installed base of around 800mn users – providing a global distribution platform and, crucially, a virtually frictionless payment system. It seems logical then to expect Apple to include Beats Music in a software upgrade to its entire global installed base, and/or bundle a free/discounted subscription for a fixed period with new hardware at the point of sale. We would regard both of these developments positively for the whole industry. With iTunes stores in 123 countries, 425 retail stores, App stores in 155 countries and an army of 800mn users, Apple could very quickly scale a music streaming service, given its existing reach and music deals. Indeed, while the iTunes Music contribution alone is a relatively small percentage of their revenues by our estimates, we believe its long relationship and the usage of music in its products remains a core feature set, and is an area where the company will remain committed.'”
Garcha continued: Apple has built an entire portfolio of services. Apple has built a portfolio of services that range from the App Store, iMessage, iCloud, iBook store and now HomeKit and HealthKit. Additionally, these services are increasingly integrated across its major hardware portfolio of Mac, iPhone and iPad. We believe that Apple’s vertically integrated structure across hardware, software and services, and across multiple products results in several strategic advantages versus its peers. First, it leads to high quality levels of integration in a manner that we argue rival platforms such as Android and Windows lack. Second, seamless availability of services and software competency results in high levels of usage (whether looking at mobile browsing, mobile commerce, or data usage, iOS devices materially outperform their installed base of smartphone units by a factor of four) which makes the company an attractive partner for new ecosystems. Third, given many of Apple devices cover all aspects of its consumer’s lives from TV consumption to mobile telephony to PC’s, the company owns a Big Data advantage that few of competitors have, which we believe is useful for new businesses and product improvement. Finally, it provides a platform for new services and products ahead.
Read more, including how Apple gets to 1.3 billion iTunes user accounts, in the full article here.