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Investment Thesis
According to Bloomberg, Apple (NASDAQ: AAPL) may offer a new subscription service for its products, while also allowing device upgrades to recently released models. While some may think the subscription program will help the company gain more market share than Android, we have differing views, given the high rates of AAPL device ownership in the US. To date, Android phone users accounted for over 70.97% of all smartphones used worldwide. As a result, we doubt that a new, renamed “subscription plan” will appeal to non-AAPL phone users for a number of reasons, including the ability to customize Android phones and the incompatibility of certain software. In addition, for other AAPL products, such as MacBooks and iPads, we also need to consider other reasons besides its price, such as users’ preference for Windows products and the superior performance of gaming laptops from other brands. In the meantime, we encourage you to read our previous article on AAPL, which will help you better understand its position and market opportunities in the advertising department.
Why Apple’s subscription program may not help increase revenue?
Although we are not sure about AAPL’s subscription plan, many do not share our view, given the way in which the stock grew by 1% on March 24, 2022 after the new release. Despite what Bloomberg has described as helping product adoption in price-sensitive markets, we have noticed that many AAPL users are turning to network providers’ plans for iPhone subsidies, credit card payments, and second-hand purchases. In addition, AAPL has in the past launched many similar services in the US: Apple Card Installment Plans, New iPhone Update Program Every Year, Buy Now Pay Later (BNPL), among others. These offer a combination of financing plans for consumers who want to purchase AAPL devices at a more affordable monthly charge than a one-time full charge. The fact that the US is a rich country helped the adoption to over 41.9% in the YTD country, which represents the largest market for AAPL products in the world. However, due to its popularity, its penetration in the US market could have reached a tipping point and we are not sure how the subscription program could help its sales and growth to move forward. However, we also note that the suggested subscription plan applies to all other AAPL products, including iPad, MacBook, Apple Watch, etc. As a result, we might expect a possible increase in adoption, though not a huge one, given the way the iPhone accounts for 52.5% of its sales in 2021. Bloomberg itself has likened the plan to a lease plan. depending on how AAPL structures its monthly financing plan. However, an additional monthly payment plan can burden the wallets of most Americans with multiple payments, such as mortgage bills, car payments, gas and electricity, student loans, and more. 2021. In addition, since AAPL products have always been sold at a higher price than other brands, there is no doubt that even a monthly charge would not be so affordable. AAPL, on the other hand, could potentially cut off intermediaries from network providers in the US and globally. The assumption is that these providers buy bulk iPhones at a discount and resell them to consumers at a higher price, in order to win the profit margin. As a result, AAPL’s new plan could aim to increase the carrier’s profits, further boosting its revenue. However, iPhone consumers in the US have historically relied on network providers for SIM cards, authentication and credit verification before the transaction with their device was approved. Interestingly, however, AAPL left tangent to its latest iPhone SE from March 29, 2022 onwards. The new process of selling low-end models does not require this credit verification step, which gives the company more control over pricing (installments or full price), customer service and experience. This one-off strategy could well be AAPL’s first intrusion into its new financing plans, such as the rumored subscription plan for all of its later devices, including the iPhone 14, which will be released later in 2022. However, in this way, AAPL is exposed to the risk of revenue, as more than a third of Americans have not had BNPL payments since 2021. The BNPL surge swept the US and globally in 2020 during the COVID-19 coronavirus . causing a massive change in consumer shopping habits and credit risk. With an ongoing survey of BNPL companies since December 2021, it is clear that the US government is concerned about how consumers are being pressured to buy products that they cannot afford.
Why the AAPL subscription program can work to its advantage
The advent of 5G technology and increasingly powerful software updates will eventually require enhanced computing power from newer chips. In addition, newer applications and the latest software updates also require newer versions of iPhone with additional storage bytes. As a result, the subscription program could encourage more of AAPL’s existing users to upgrade to its newer (and more profitable) devices with improved technology, thus increasing its revenue. With the subscription plan, the monthly entry fee would also be more appealing to AAPL enthusiasts, given the way the iPhone 13 costs over $ 700, assuming an advance purchase. In addition, as AAPL is known to be phasing out support and software updates for its “vintage” devices (released over five years), the plan could help the company once again welcome long-term AAPL users with older unsupported devices. There may also be a potential uptrend in AppleCare +, which is linked to future AAPL subscription plans. Its consumers are more likely to buy “lease insurance” by seeing how they could easily lose and / or destroy their devices during their plans. At the same time, AAPL can also achieve its sustainability goals faster, while reducing its construction costs forward. By recycling raw materials from older unsupported devices, the company would be well ahead of its plans to be carbon neutral by 2030. The assistance program will also help ensure the return of AAPL equipment, which may still be in excellent working condition. As a result, the company could potentially upgrade its devices and resell them, boosting its market share in developing countries. Conventionally in price-sensitive markets, AAPL products were largely inaccessible to most of the population. However, as many of its older devices are already available in countries such as India and Indonesia in the used market, its upside potential is more the one-time sale / commission of a subscription that directly contributes to its revenue for these older devices, rather than in its revenue from the App Store. In addition, many handset makers, including AAPL and Samsung, are pushing for eSIM technology, which allows customers to activate mobile applications without the need for a conventional physical SIM card. Traffic dramatically reduces phone manufacturers’ reliance on network providers for the buying process, allowing the former to sell directly to consumers. With AAPL’s new iPhone 13 already offering eSIM technology, we can expect AAPL to fill more loopholes in the phone buying process as it progresses. Assuming domestic success and the adoption of the telephone subscription program and eSIM technology, AAPL may push for the implementation of the strategy globally, cutting off virtually all network providers from now on. The strategic move could potentially boost AAPL revenue and growth forward, provided it is properly implemented and widely adopted.
So, is the AAPL stock Buy, Sell or Hold?
Since our last article, AAPL’s share price has risen 14.51% from $ 152.58 on February 24 to $ 174.72 on March 25, 2022. AAPL is certainly a stable stock, however it has recovered considerably and is trading at a growth premium now. As a result, interested investors may want to wait for a small refresh before adding to your portfolio. However, we encourage aggressive investors to add more, as AAPL is expected to report strong earnings growth. For fiscal year 2022, Consensus estimates that AAPL will report revenue of $ 395.15 billion, representing an annual increase of 8%. In addition, AAPL is expected to increase its CAGR revenue by 5.39% over the next three years. These numbers suggest that, although AAPL is a company maturing by slowing revenue growth, it is still a stable stock with favorable growth prospects. Assuming excellent execution, the subscription program could well boost its revenue over time. As a result, we repeat the market position for AAPL.
