Skeptical investors undervaluing Apple's services, Morgan Stanley raises AAPL to $234

Posted:
in AAPL Investors edited April 24
Investors consistently undervalue Apple's Services, and iPhone sales are strong, which has led Morgan Stanley to raise the target price for Apple stock to $234.




The power of Apple's services and the iOS platform are not appreciated by those putting money into the company, an investor note seen by AppleInsider suggests, with iOS users said to be spending ten times as much as Android users on mobile apps, and with an increased level of engagement.

"This skepticism, combined with the lack of details on timing and pricing for recently launched services, led the Street to leave revenue forecasts largely unchanged despite Apple nearly doubling the number of Services offered this year," the firm writes. Citing the success of iCloud and Apple Music, both are said to have contributed 300 basis points on average to Services revenue within their first full year post launch.

Year-on-year improvements for App Store revenue are touted to begin in the June quarter, following the Chinese government's decision to pause new gaming license approvals last year.

It is also suggested the iPhone could become a contributor to "multiple expansion" once more. Estimates of iPhone replacement cycles lengthening to greater than three years in the December quarter are thought to turn into four-year replacements by the end of the fiscal year. This is apparently "on par" with the mature PC market, which Morgan Stanley says reflects a ceiling for the smartphone market.

The firm's data points for the iPhone also stabilized early in the March quarter, with a supposed "positive inflection" in China's active installed base share, and improvements for Taiwanese supplier monthly sales at the end of the quarter.

The settlement with Qualcomm "increases the likelihood of a 5G iPhone launch in 2020," the team believes, with investors typically starting to price the device between six and nine months before the launch.

Despite the likelihood of Services growth accelerating and the moderation of iPhone declines, as well as increased continued support of investors in the form of stock buybacks, Morgan Stanley's conversations with institutional investors suggest most are "uninvolved or underweight/short" on Apple stock. In light of this, Morgan Stanley raises its price target from $200 to $234.

It is expected that Apple will announce a 10% dividend raise and a renewed buyback authorization, somewhere in the region of $50 billion.

For the April 30 results themselves, Morgan Stanley posits the quarterly revenue will be at the high-end of the $55 billion to $59 billion guidance, in part due to the Chinese improvements. Shipments of iPhones are speculated to be around 42 million units, down 20 percent year-on-year but up from earlier estimates of 40 million units.

The iPhone ASPs are expected to be down from the $755 seen last year, this time thought to be at $724, below consensus expectations of $748. The lower ASP is due to the "greater mix of legacy products" and iPhone price cuts in some markets.

Comments

  • Reply 1 of 12
    lkrupplkrupp Posts: 7,454member
    Wait. What? Earlier we were treated to Goldman Sachs $182 target. We even had a comment in that thread saying financial advisors are saying Apple is finished. Now comes Morgan Stanley? WTF How can two “respected” financial houses be so far off from each other. Analysts?
    gilly33indiekiduk
  • Reply 2 of 12
    Of all the analysts covering Apple, the one that seems to get the company the best -- currently -- is Huberty, IMHO.
  • Reply 3 of 12
    Johan42Johan42 Posts: 163member
    Apple services aren’t so great. They are good at hardware and their OSs, but iCloud still acts like it’s in beta and Apple Music is quite horrible.
    sirozha
  • Reply 4 of 12
    FolioFolio Posts: 652member
    Didnt Katy Huberty raise from $220 to 234? Anyhow, it's good to see a succession of raises among analysts. The services part of Apple gaining recognition, will further differentiate Cupertino from the pack-- for users, stockholders, and future R&D investments.
  • Reply 5 of 12
    rogifan_newrogifan_new Posts: 4,213member
    Apple Music is OK for what I use it for but the News app is pretty bad. I’m certainly not subscribing to News+. Seems like a half baked product that was rushed. I hope the TV service isn’t like that. I have higher hopes for Apple Arcade because that’s probably under Schiller’s org and not Cue’s.
  • Reply 6 of 12
    SpamSandwichSpamSandwich Posts: 31,497member
    Of all the analysts covering Apple, the one that seems to get the company the best -- currently -- is Huberty, IMHO.
    She used to be one of the most consistently wrong. I still think Horace Dedieu (sp?) is one of the best.
  • Reply 7 of 12
    Johan42 said:
    Apple services aren’t so great. They are good at hardware and their OSs, but iCloud still acts like it’s in beta and Apple Music is quite horrible.
    How does iCloud act like it’s in beta? I don’t have any issues with Apple Music so I’m curious why you think it’s quite horrible?

    I know plenty of people who are paying at least $12 a year to add addition iCloud storage.  I imagine as time goes on there will be more people wanting to increase their iCloud storage. Isn’t the additional storage the biggest/only reason people pay for iCloud? In that sense, how does it act like it’s in beta? Are there issues related to iCloud when restoring from back up or using iCloud Photo Library?

    I think the free 5GB tier should be revised upward but even if it went to 20GB that still leaves a bunch of people who want to stay on the 50GB tier or higher.
    edited April 24
  • Reply 8 of 12
    thttht Posts: 3,311member
    For the stock price predictions from analyst houses, remember the game is - and it is no more than a game - is predicting whether or recommending to mutual fund managers on whether they are buying or selling the stock. The reasons for buying or selling from the managers ranges from hard financial data to having a double espresso in the morning over a latte. 

    They aren’t in the business of predicting Apple’s business performance. They are in the business of predicting where Apple’s share price is going, and that is at best loosely coupled to the former except for the blindingly obvious. If it is not blindingly obvious, reading goat entrails is probably on average about the same. 

    You are not these analyst’s customers. 
  • Reply 9 of 12
    thttht Posts: 3,311member
    Apple Music is OK for what I use it for but the News app is pretty bad. I’m certainly not subscribing to News+. Seems like a half baked product that was rushed. I hope the TV service isn’t like that. I have higher hopes for Apple Arcade because that’s probably under Schiller’s org and not Cue’s.
    I’m almost there with subscribing to Apple News+. If they had more science journals or articles, it would be a no brainer for me. Still needs to be properly edited. Don’t like the silo stuff that can happen with engagement algorithms. 

    It’s a long game, just like it is with music. They just need steady subscription uptake, not massive success at the beginning. Just a steady march towards 10s of millions of subscribers. 

    The subscription services won’t add much to the bottom line. 10m News+ subscribers is 300m per quarter, or 1.2b per year. That’s great revenue for all companies but for a few like Apple. 

    But the rocket launches if those subscriptions turn into hardware sales. Another 1m Apple devices sold per quarter is 1b per quarter or 4b per year. The more extra hardware sales those subscription services gives Apple some pretty high altitude revenue numbers. It’s compounding too (more service dollars and hardware dollars in a virtuous cycle).
  • Reply 10 of 12
    Of all the analysts covering Apple, the one that seems to get the company the best -- currently -- is Huberty, IMHO.
    She used to be one of the most consistently wrong. I still think Horace Dedieu (sp?) is one of the best.
    Yeah, I remember the history there. She was a ridiculously pessimistic bear for the longest time. That's why I thought it was worth of mention...
    SpamSandwich
  • Reply 11 of 12
    Apple Music is OK for what I use it for but the News app is pretty bad. I’m certainly not subscribing to News+. Seems like a half baked product that was rushed. I hope the TV service isn’t like that. I have higher hopes for Apple Arcade because that’s probably under Schiller’s org and not Cue’s.
    I don’t understand why News is the only Apple apps that got rid of bottom tabs navigation. For what? To be compatible with Marpizan?

    It’s such a great feature on iOS and make navigation much easier. No wonder the navigation in News+ is really bad. That said, I would still subscribe to it if I have available time for long reading but I just won’t have it atm. I still say it is a great value, only $9.99 for all those magazines, for someone who wants to read magazines though. 
  • Reply 12 of 12
    Johan42Johan42 Posts: 163member
    Johan42 said:
    Apple services aren’t so great. They are good at hardware and their OSs, but iCloud still acts like it’s in beta and Apple Music is quite horrible.
    How does iCloud act like it’s in beta? I don’t have any issues with Apple Music so I’m curious why you think it’s quite horrible?

    I know plenty of people who are paying at least $12 a year to add addition iCloud storage.  I imagine as time goes on there will be more people wanting to increase their iCloud storage. Isn’t the additional storage the biggest/only reason people pay for iCloud? In that sense, how does it act like it’s in beta? Are there issues related to iCloud when restoring from back up or using iCloud Photo Library?

    I think the free 5GB tier should be revised upward but even if it went to 20GB that still leaves a bunch of people who want to stay on the 50GB tier or higher.
    Sometimes when I try to delete files from iCloud, they either refuse to delete or simply come back later. Certain built-in apps don’t Disable & Delete from the iCloud Storage section.

    And as to Apple Music...the discovery algorithm sucks. And stations repeat the same thing over and over again. Gets annoying.
Sign In or Register to comment.