Gene Munster: Wall Street is missing a critical point about Apple

“Apple reported strong second-quarter earnings on Wednesday, exceeding Wall Street’s expectations,” Aarthi Swaminathan reports for Yahoo Finance. “But the street is missing a ‘critical’ piece of the puzzle, says one expert.”

Swaminathan reports, “‘If I look at the broader analysis across Wall Street today, I think that there is a critical missing piece specifically about what’s the proper multiple to put on this company,’ Gene Munster, Loup Ventures managing partner, told Yahoo Finance’s ‘On The Move’ Wednesday. ‘The key distinction here is that investors typically think of this as a hardware business. Understandable, given that 80% of its revenue is hardware. But keep in mind, 35% of earnings are services-based and over the next few years, the company is progressively going to start to sell a hardware as a service.'”

“The fact that the company is going ‘down this path’ of becoming a services-based company requires a ‘rewriting of the multiple,’ said Munster,” Swaminathan reports. “Because soon, ‘this 70%-plus kind of upside that we expect in the stock over the next couple of years, really assumes what we think is a consumer staple,’ he said. And that means Apple — in the near future — could become a ‘Coca Cola 22 times type of a multiple,’ said Munster.”

Read more in the full article here.

MacDailyNews Take: Munster is right. Apple’s PE ratio is currently a laughable 17.71. Investors still don’t get it, but, hopefully, someday they might as the numbers become too obvious and large to continue to ignore.


  1. They’ll hopefully get it eventually, but a company with such strong fundamentals doesn’t seem to be the type of thing that’s valued in that casino anymore.

    1. Apparently, only high future growth is valued on Wall Street with basic fundamentals largely ignored. Wall Street is more like a casino always looking for some future huge payoff which is pure greed. Being a slow growth company just doesn’t cut it with big investors looking for wealth. I’m old so I would rather get some money now than wait years from now for some big payoff. Apple’s P/E is laughable when compared to other major tech companies but I don’t think that’s ever going to change, no matter what Apple does.

  2. Never liked this narrative of Apple becoming a services company. It’s fine that services becomes an important part, maybe even the majority, of their business but the real foundation to Apple’s business is their great physical products. This is what attracts people to their ecosystem and buys their services.

    Apple has always said its about the integration between hardware and software. I think Tim should now say its about the integration of hardware, software and services. Maybe this is his intention but when he just harps on about services it makes me concerned he’s too focused on one aspect of the business when all parts of the business need equal attention for Apple to produce the products we want.

    1. I think Apple is the only firm that’s doing hardware, software, services at the highest level. And they’re getting much better at the services side, finally.

      But what Munster is talking about is hardware-as-a-service. (Or better described, Apple-as-a-service). The idea that you could subscribe to Apple and get the newest and best of everything, and pay for it as you would your utilities. A billion or two loyal customers paying Apple a predictable amount each month for the best hardware, software, services is some good recurring revenue.

      1. It’s not that I’m against them getting into services or selling hardware-as-a-service. I’m really just concerned about whether its taking too much of their focus away from the other parts of their business, mainly hardware.

      2. With Tim Cook’s Apple I sometimes feel that what drives their decision making process is how to generate more revenue from it’s customers rather than creating insanely great products. If they created great products/services at reasonable prices everything else will follow.

    2. Wall Street doesn’t buy it, if Cook screamed on the top of his lungs that “Apple is a services company”. Can’t shake off the image that Apple is a hardware company regardless Apple is the only company among FAANG making the most profits. WT ignores the transformation of the company to services and also doesn’t respect a hardware company, that’s why Apple PE is low only 17.46.

      1. Apple’s secrecy is the main reason for low investor confidence and reflected in Apple’s PE being so low. You can say all you like about current and past performance but investing as a rule is about being confident about the future, short and long term. iPhone/iOS is still the huge pillar supporting AAPL revenue. PE may rise despite their continued secrecy if enough revenue streams that don’t depend so heavily on each other are developed by Apple.

      1. Wall Street does understand ecosystems, just not the type Apple proposes. Disney and McDonald’s are great examples of Wall Street understanding the value of integrated business parts.

  3. Apple is the only company offering the binded experience of hardware and software. They never believed in other business model…

    Lots of company are trying right now to do the same; MS, Google and the like.

  4. “someday they might as the numbers become too obvious and large to continue to ignore.”

    If that was ever going to happen, don’t you think it would have already happened? They hit the $1T mark a while ago

  5. Recurring payments for everything (hardware, software, services) as a package? No direct ownership but only permission to use the package which would be limited to what the signed contract stipulates? If this scenario is the tech future, then it indicates ta grave reduction — perhaps elimination — in the continuation of governance and in society as well as in material reality. In other words, the replacement of manual tools with electrons. Quantum as the new god.

  6. 900 Million Apple device owners paying $250/month (24-month minimum) for a top of the line bundle of iMac, iPhone, iPad, Apple Watch, Air Pod, Apple TV, Apple Music, TV+, News+, Apple Arcade, tiered down for actual models selected (including new/refurbed). Who wouldn’t do that? I like it.

      1. Probably $10-30 more than I’m currently paying for my iPhone. I think the bit I like most about this sort of bundle is I would literally not have to worry about anything, iCloud Photo’s, iCloud Backups, Unlimited Music, great selection of games, TV content and a new phone every few years.
        I think it’s as compelling as Amazon Prime. The aspect that will probably attract most people is combining it with the iPhone Upgrade Program, it’s a bit like what Free Delivery is for Amazon Prime.
        Its deals like this which could really drive Apple towards a Hardware-as-a-Service company.
        To help them along the way they really need to start bundling long trials of their services with their products. They seem to be missing a trick here to expand their services. Why not ship a 6 month trial of AppleMusic with the HomePod or for that matter why not with all of their products for a limited time?

        1. Sounds reasonable.. I buy my new smartphone upfront, subscribe to Amazon Prime and pay about $35/month for 500/200/100 (phone/text/data) so assuming 2yrs between phone upgrades that would work out to about $300 + $120 (x2) + $35 (x24) = $1380/2yr = $57.50/month. If it’s an iPhone 1 model behind I would pay another $10/month. So about $68/month is about my range for considering the bundle you describe. 😛

  7. Apple could easily fix many of their problems if they did a few things:
    • Release Mac Pro – update internals yearly
    • Offer a display
    • Offer a 4″ phone (also fills void for entry-level price)
    • Listen to customer feedback for software updates
    • Get a new advertising firm
    • Announce, ship, report financials of a new product in ONE financial quarter
    • Diversify manufacturing (20,000 in U.S. – 10,000 China – 10,000 Mexico – 10,000 India) = 50,000 workers average $50k /yr = 1% of your revenue to meet demands on manufacturing, lessen shipping, balance work force in case of labor disputes and have the ability to allocate resources to meet high demands
    • Cycle hardware/software at a much faster rate – hardware = yearly • software – quarterly (or faster if needed)
    The company has the revenue to do so.. it just lacks a leader that can handle it.
    • Lastly, get someone else to do the keynotes with passion and is realistic on what you are pithing… people are not wow’d anymore by color watch bands…

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