Apple shares may be going through a rough patch right now, but according to Bernstein analyst Toni Sacconaghi not only are the troubled times not likely to last, but Apple could see its value rise to a massive $1 trillion market cap.
Provided that it makes a change to it’s business model, that is!
In a note to clients, Sacconaghi floated the idea that Apple should concentrate on growing its subscription services business — and should even bring its hardware under this banner, so that customers would be paying a monthly fee to Apple rather than just upgrading their devices as and when.
Apple has explored this idea through its upgrade program, as well as Apple Music, but the majority of its revenue still comes from one-off payments. Still, Sacconaghi (who gives AAPL stock an outperform $135 price target) thinks that “Apple-as-a-service” would be a positive move for Cupertino going forward.
“A migration to a subscription model would likely lead to a material re-rating in AAPL’s multiple. While transactional hardware companies trade at 10 – 11x earnings today (AAPL trades at 11x, or 8x ex-cash), a business with a truly recurring revenue and profit streams would be likely be valued at a much higher multiple – for reference, we note that media companies trade at 14-15x and internet companies trade at a median of 28x earnings, highlighting the potential for a re-rating in Apple’s multiple.”
While Sacconaghi doesn’t go into details about how “Apple-as-a-service” would work, it’s certainly an intriguing concept — although given how untested offering hardware as a service is, it’s difficult to take it for granted that such a move would cause Apple’s market cap to almost double from its current $520 billion to $1 trillion.
How much would you pay as a monthly fee to receive access to the latest Apple devices each month? Do you think this is an idea with merit or another in a long line of wacky analyst suggestions? Leave your comments below.