As a standalone company, Apple's services business could be worth as much as $260B, Piper Jaffray s
Investment firm Piper Jaffray continues to believe that Apple's services business is vastly undervalued by Wall Street, as the company reiterated this week that services should be a larger focus for investors.
Analyst Gene Munster issued a note to investors on Wednesday noting that shares of Apple's chief rival, Google, trade at about about 19 times the company's projected calendar year 2017 operating revenue, excluding net cash.
Applying that same metric to Apple would imply a valuation of around $264 billion for the iPhone maker's services business, Munster said. That compares to a current market capitalization of around $590 billion with $160 billion in cash.
Munster said using Google as a comparison seems to him to be the most fair way to judge Apple's services business. But he acknowledged that the tight integration between Apple's hardware and software makes it a difficult comparison.
Even if investors were to take a "safe" approach and halve Google's projected calendar year 2017 multiple to 10 times, that would still place Apple's services business as being worth $139 billion, he said.
Munster noted earlier this week that Apple's services business grew profit margins by 60 percent in 2015. He expects that growth to continue as the company leverages its huge installed user base.
Apple itself has been placing a greater focus on its services business in recent earnings reports. And Munster believes that Apple's continued focus on it will resonate with investors --?eventually.
"Apple's current valuation seems to understate the value being created by the Services business, and we expect the awareness of this to grow over the next several quarters as Apple continues to give more detail on the segment," he said.
Piper Jaffray has maintained its "overweight" rating for shares of AAPL, with a price target of $172.
Analyst Gene Munster issued a note to investors on Wednesday noting that shares of Apple's chief rival, Google, trade at about about 19 times the company's projected calendar year 2017 operating revenue, excluding net cash.
Applying that same metric to Apple would imply a valuation of around $264 billion for the iPhone maker's services business, Munster said. That compares to a current market capitalization of around $590 billion with $160 billion in cash.
Munster said using Google as a comparison seems to him to be the most fair way to judge Apple's services business. But he acknowledged that the tight integration between Apple's hardware and software makes it a difficult comparison.
Even if investors were to take a "safe" approach and halve Google's projected calendar year 2017 multiple to 10 times, that would still place Apple's services business as being worth $139 billion, he said.
Munster noted earlier this week that Apple's services business grew profit margins by 60 percent in 2015. He expects that growth to continue as the company leverages its huge installed user base.
Apple itself has been placing a greater focus on its services business in recent earnings reports. And Munster believes that Apple's continued focus on it will resonate with investors --?eventually.
"Apple's current valuation seems to understate the value being created by the Services business, and we expect the awareness of this to grow over the next several quarters as Apple continues to give more detail on the segment," he said.
Piper Jaffray has maintained its "overweight" rating for shares of AAPL, with a price target of $172.
Comments
The main reason why the Apple service business is successful, is the iPhone (and to a lesser extend the other devices). And for the record, there is nothing wrong with that.
Without the iPhone ecosystem, the Apple service business would have a lot of difficulties to differentiate itself from the competition.
Nobody would consider using iCloud: it has less functionality and is more expensive than Dropbox, OneDrive, Google Drive, .... If the service business could stand on its own, there should millions of Android only users having a subscription for Apple Music.
Given the amount of money that Apple returns to their shareholders each year, and with the cash generated each year, Apple's stock price is basically valued at the company not existing in 10 years (if you take the view that the current stock price is meant to reflect all expected future earnings).
iCloud services are NOT just a file sync services.. as you seem to think are.
As for AAPL's rating, the stock market is such a bunch of BS it doesn't make sense. There's no way Google should have such a high P/E (in the 30's) while AAPL's is only around 11. Google doesn't produce anything, it only provides targeted advertising services, which almost everyone hates.
I'm sorry but this is all BS. This is hardware growth slowing, especially iPhone, so we gotta come up with a new narrative so oh hey let's turn Apple into a services company! Apple is not a real services business. Everything it does is with the goal of selling more hardware, making hardware more desirable. If Apple was a real services company all their 'services' would be in every platform and/or the web. Also what Gene Munster is now valuing has always existed. It's it like Apple all of a sudden has 800M people with credit cards on file. If iPhone and iPad growth were off the charts, if an actual Apple television set was in development a Gene Munster wouldn't be pushing this Apple is a services company narrative.
Hardware is where and how Apple makes is money. The software and services support it, not the other way around. End of story.
Apple is never going to license out its operating systems. The reason people pay a premium for Apple is because of the entire experience. What you're recommending is Apple completely move away from that to some stupid volume game and assuming all these alleged new customers would purchase Apple's services. People need to stop spewing nonsense just because iPhone sales growth is slowing. And services is about more than just how to make money off users. Apple needs to get a lot better at the cloud and cloud services and partnering which will require a cultural shift within the company,
*Because apparently the morons on wall street can't do the simple math that sticky ecosystem + hardware = recurring revenue.
-Proactive is almost never useful
-Maps is a great app, but insanely frustrating to use since I still have to type in the exact f&cking spelling and spacing to find the locations I'm looking for.
*-Siri is still terrible at fulfilling search requests; Siri works great for simple things like reminders, but for instance, if I say "find Bar Munich," which is a bar one mile from my apt, it says sorry, I couldn't find "barr munich," presumably since I have a contact in my phone with the last name "Barr." Similar things happen all the time.
-Apple Pay is a joy to use, but the uptake by retailers is frustratingly slow
-Apple Music is a bit of a mess: a great value (I use it daily), but Apple hasn't done nearly enough to promote it; Beats 1 is a great station, but again, not enough promotion; the playlists should be based on genres and sub-genres (which are still bizarrely lacking in iTunes/Apple Music) not activities or arbitrary mixes where they somehow magically find the perfect 15 songs that go together; supposedly Apple knows the specific songs that are best between Cooking, Driving, Entertaining, and BBQing??? How are these separate categories? It makes no sense whatsoever. It basically assumes people don't know what kind of music they like, and they actually expect people to one day tell siri "play me music for cooking." Dumb.
*I've said this before, but how hard can search be, google does it.
People can throw up all kinds of numbers around a loosely defined category called "services" because they're panicking over iPhone's slowing growth, but Apple actually needs to get good at services before it can be considered a services company. And right now it's not at all. Also one can't just assume users are going to subscribe to all these "services". Apple has what. 700-800M credit card accounts and Apple Music subscriptions are maybe 1-2% of that. I can say in my circle of family and friends I'm almost the only one with an Apple Music subscription. Everyone else either uses Pandora, free version of Spotify or YouTube. So "monetizing the user base" isn't a slam dunk.