Apple is likely to offer Mac, iPad, and Apple Watch hardware subscriptions which will significantly increase Apple’s revenue and earnings, Loup Ventures‘ Gene Munster and David Stokman predict.
Similar to the iPhone upgrade program, we believe, over time, Apple’s delightful hardware trade-in experience for Mac, iPad, and Watch will evolve into hardware subscription offerings for these devices. Eventually, we envision the company merging its services offerings, alongside hardware subscriptions, to create a 360° bundle. Think of this as paying a monthly fee to Apple for most of your tech needs…
Apple is the only company that can make this work, given their service and maintenance logistics, along with seamless hardware and software integration.
Today, about 55% of the company’s revenue can be purchased as a subscription. By adding Mac, iPad, and Watch subscriptions, that number will approach 85%. This dynamic will increase Apple’s revenue and earnings visibility which should, in turn, expand their earnings multiple. Our $200 price objective is based on 35x our 2022 EPS estimate of $5.70…
We believe Mac and iPad growth rates will stabilize around 10% over the next few years, representing a step up from flattish growth pre-pandemic.
MacDailyNews Take: The Wall Street Journal‘s Christopher Mims and analyst Horace Dediu back in February 2018 concurred:
Contrary to popular belief, Apple Inc. isn’t a hardware company. Nor is it a software company. Apple is, fundamentally, an ecosystem company… The trouble is, as Apple increasingly emphasizes device prices over volumes for revenue gains, it confronts a fundamental tension—between charging people more for hardware and, simultaneously, more for services to access through it. The former puts profit margins ahead of prevalence, while the latter emphasizes maximizing the number of gadgets in customers’ hands.
Services, and the millions of developers and thousands of companies behind them, are the reason the iPhone is so sticky, says Horace Dediu, an Apple analyst and fellow at the Clayton Christensen Institute for Disruptive Innovation. One way for Apple to resolve the hardware-versus-services tension would be to roll them into one giant subscription, Mr. Dediu says.
Imagine a service where you simply subscribe to a regularly updated iPhone, Apple Watch, AirPods or some subset of these devices. Throw health monitoring, an iCloud subscription, Apple Music, Apple’s original programming and more into a cable TV-like bundle, or a la carte, and Apple could go from being a hit-driven company to one that throws off predictable, consistent, subscription-based revenue. Think of it as Apple Prime.