Based on BloombergApple (NASDAQ: AAPL) may be offering a new subscription service for its products, while allowing device upgrades to its newer models. While some may think the subscription plan will help the company gain more market share in the Android segment, we have different opinions given the high ownership rates of AAPL devices in the US.
To date, Android phone users accounted for more 70.97% of all smartphones used globally. As a result, we doubt a rebranded “subscription plan” will appeal to non-AAPL phone users, for many reasons such as Android phone customization and software incompatibility. In addition, for other AAPL products, such as MacBooks and iPads, we also need to consider other reasons beyond its price, such as user preference for Windows products and superior computer performance. gaming laptops from other brands.
In the meantime, we encourage you to read our previous article on AAPL which would help you better understand its position and market opportunities in the advertising segment.
Why Apple’s Subscription Plan May Not Help Its Revenue Growth
While we’re not sure about AAPL’s subscription plan, many don’t agree with us, given that the title rose 1% on March 24, 2022 after the new release. Despite what Bloomberg has described in terms of helping product adoption in price-sensitive markets, we’ve observed that many AAPL users are turning to network carrier plans for iPhone subsidies, credit card payments and second-hand markets. In addition, AAPL has previously launched several similar services in the United States: installment plans via Apple Card, iPhone Upgrade Program for new iPhones every year, Buy now, pay later (BNPL), among others. These offer a combination of financing plans for consumers who wish to purchase AAPL devices at a more affordable monthly rate than the single full rate.
The fact that the United States is a wealthy country has helped push adoption to more than 41.9% in the country YTD, representing the world’s largest market for AAPL products. Nevertheless, due to its popularity, its market penetration in the US might have plateaued, and we don’t know how the subscription plan might help its sales and growth in the future.
However, we also note that the subscription plan offered applies to all other AAPL products, including iPad, MacBook, Apple Watch, etc. As a result, we can expect a potential uptick in adoption, although not massive, given how iPhone accounts for 52.5% of its sales in fiscal 2021. Bloomberg itself compared the plan to an auto leasing program, based on how AAPL structures the monthly financing plan.
Nevertheless, an additional monthly payment plan can overload the wallets of more Americans with multiple payments, such as mortgage bills, car payments, gas and electricity, student loans, etc., since the average american household owes approximately $155,000 in loans by the end of 2021. Also, since AAPL products have always sold at a higher price than other brands, there is no doubt that even a monthly fee would not be not as affordable.
On the other hand, AAPL could potentially eliminate middlemen from network operators in the United States and around the world. The assumption is that these carriers buy iPhones wholesale at a discount and resell them to consumers at a higher price, to earn the difference in profit. As a result, AAPL’s new plan could be aimed at generating profits for the carrier, thereby increasing its revenue. However, iPhone consumers in the United States have historically relied on network carriers for SIM cards, authentication and credit checking, before their device transaction can be approved.
However, interestingly, AAPL took the tangent for its latest iphone SE from March 29, 2022. The new low-end model sales process does not require this credit check step, giving the company more control over its pricing (tiered or full price), its customer service and experience. This one-off strategy could very well be AAPL’s first foray into its new funding plans, such as the supposed subscription plan for all its later devices, including the iPhone 14 launching later in 2022.
However, in doing so, AAPL exposes itself to the risk of earning revenue, as more than a third of Americans missed their BNPL Payments starting in 2021. The BNPL wave engulfed the United States and the world in 2020 at the height of COVID-19, causing a massive shift in consumer buying habits and credit risk. With a current probe on BNPL companies since December 2021, it is clear that the US government is concerned about how consumers are being pressured into buying products they cannot afford.
Why AAPL’s subscription plan may work in its favor
The advent of 5G technology and increasingly powerful software updates will eventually require increased computing power from new chips. Additionally, newer apps and latest software updates also require newer versions of the iPhone with additional bytes of storage. As a result, the subscription plan could entice more of AAPL’s existing users to upgrade to its newer (and more cost-effective) devices with improved technology, thereby increasing its revenue in the future.
With the subscription plan, the monthly subscription fee would also be more attractive to ardent AAPL fans, given that its iPhone 13 costs over $700, assuming an upfront purchase. Additionally, with AAPL known to phase out support and software updates for its “old” devices(launched over five years ago), the plan can help the company re-accommodate long-time AAPL users with older, unsupported devices.
There may also be a potential benefit in its AppleCare+ Segment, attached to future AAPL subscription plans. Its consumers are more inclined to purchase “leasing insurance” because they could easily lose and/or damage their devices during the term of their plans. At the same time, AAPL can also achieve its sustainability goals faster, while reducing manufacturing costs in the future. By recycle key manufacturing materials older devices not supported, the company is said to be well ahead of its plans to be carbon neutral by 2030.
The subscription plan would also ensure the return of AAPL’s devices, which may still be in full working order. As a result, the company could potentially refurbish its devices and resell them, increasing its market share in developing countries. Traditionally in price-sensitive markets, AAPL’s products have been mostly out of reach for most of the population. However, since many of its older devices are already in circulation in countries like India and Indonesia in the second-hand market, its upside potential lies more in one-time sales/subscription fees that contribute directly to its revenue for these older devices, rather than App Store revenue.
Additionally, many phone makers, including AAPL and Samsung, are pushing for eSIM technology, which allows customers to activate cellular plans without the need for a conventional physical SIM card. The move significantly reduces the reliance of phone makers on network operators 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 consolidate more gaps in phone buying processes in the future.
Assuming national success and adoption of the phone subscription plan and eSIM technology, AAPL could potentially push for the strategy to be exercised globally as well, cutting off all network operators from now on. . This strategic move could potentially drive AAPL’s revenue and growth in the future, assuming competent execution and widespread adoption.
So is AAPL Stock a buySell or Keep?
Since our last article, AAPL’s stock price has increased 14.51% from $152.58 on February 24 to $174.72 on March 25, 2022. AAPL is definitely a solid stock, however, it is has recovered somewhat and is now trading with a growth premium. Therefore, interested investors may want to wait for a slight retracement before adding to your portfolio.
Still, we recommend aggressive investors add more, given that AAPL is expected to post robust revenue growth. For fiscal year 2022, the consensus estimates that AAPL will record revenue of $395.15 billion, representing an annual growth of 8%. Additionally, AAPL is expected to grow revenue at a CAGR of 5.39% over the next three years. These numbers suggest that although AAPL is a maturing company with decelerating revenue growth, it is still a solid stock with favorable upside potential. Assuming excellent execution, the subscription plan could very well increase its revenue over time.
Consequently, we iterate our buy position for AAPL.