If Apple One launches this fall, Wall Street investors and analysts will be thrilled. An Apple bundle has been on investor wish lists for years.
“We have long argued that bundling of services is a unique tool that Apple has,” wrote Goldman Sachs analyst Katy Huberty in an August memo.
The theory is that an Apple bundle will anchor Apple’s burgeoning service business, increase subscriber numbers, and complete Apple’s shift in perspective as a hardware maker dependent on annual iPhone updates. , to a technology and software company with multiple recurring revenue lines and a self-sustaining ecosystem, with the potential to drive up stock prices without having to dramatically increase sales or product prices.
Huberty wrote that an Apple plan could differentiate Apple’s services, increase the number of subscribers to Apple’s less popular services, integrate with Apple Pay and Apple Card, and lock customers into the Apple ecosystem. Apple has set a goal of 600 million subscribers by the end of 2020 (including App Store app subscribers), Huberty writes, and a set would help it meet and exceed that goal.
Started in 2015
To some extent, Apple has already started to change its story with investors. They currently give the company a much richer valuation than in 2015, when activist investor Carl Ichan wrote an open letter to Apple CEO Tim Cook, citing the idea that Apple’s ecosystem was under. -evaluated.
As of Thursday’s close, Apple has a P / E ratio close to 34.5, according to FactSet, down from 10.9 when Icahn wrote his letter. This is largely due to Apple’s online services, which accounted for 22% of the company’s revenue in the quarter ending June.
Icahn, who sold its stake in Apple in 2016, suggested that Apple could increase its P / E ratio by expanding aggressively in the TV market, and that an essential part of that strategy would be a “package. skinny ‘pay TV shows and movies. media companies alongside a music streaming service.
The “skinny bundle” never materialized, nor did the physical Apple-made television that Icahn predicted. But in recent years, Apple has taken a few steps towards this vision. Last November, Apple released Apple TV +, a $ 4.99 per month subscription that gives users access to Apple-funded TV shows, movies, and documentaries. And in the Apple TV app, users can subscribe to CBS All Access and Showtime, two streaming channels, for $ 9.99 per month, a savings of $ 11 per month by purchasing the two services separately.
But the idea of the Apple bundle and significant recurring revenue had spread among people who believed Apple was undervalued at the time. Goldman Sachs analyst Simona Jankowski announced in 2016 that if Apple were to own its own content, it could combine it with Apple Music and hardware like an Apple TV set-top box and an iPhone for $ 50 a month. Bernstein analysts said at around the same time that Apple was buying Netflix to create a bundle to fight Amazon Prime.
The concept “Apple Prime” was born among Apple watchers and fans.
It’s unclear exactly what Apple will bundle at what price. He sells a number of subscriptions that give him a good start:
- Apple TV +, streaming video for $ 4.99 per month
- Apple Music, streaming music for $ 9.99 per month
- Apple Arcade, a selection of games for $ 4.99 per month
- Apple News +, a bundle of online magazines and newspapers for $ 9.99 per month
- ICloud storage, which allows users to sync data between devices, starting at $ 0.99 per month
Apple hasn’t released subscriber numbers for Apple TV +, Apple Arcade, or Apple News + since their launch last year. Apple Music has over 60 million subscribers. Apple said earlier this year that it has 550 million subscribers, but that counts people who subscribe to an app on the App Store.
The base plan could start with Apple Music and Apple TV +, according to a Bloomberg report. Additional tiers would add Arcade, News +, and iCloud storage for an additional fee – but still less than what the services would cost separately.
One thing that is unlikely to be included in the bundle: the hardware.
Analyst Toni Sacconaghi asked Cook directly about a set of material during a conference call last fall. He didn’t dismiss the idea, but suggested that something like this was already in effect.
″In terms of hardware as a service or as a bundle, if you will, there are customers today who basically see hardware like that because they’re on upgrade plans and so on ” Cook said on a results call. degree that exists today. ”
But Cook also said he expects hardware as a service or bundle to “grow disproportionately” in the future.
Apple has an iPhone upgrade program, introduced in 2015, which bills users on a monthly basis and gives them the option to trade in their old iPhone for the latest model once a year. And last fall, Apple began offering interest-free financing for Apple products through its Apple Card credit card partnership with Goldman Sachs.
At the end of the day, Apple doesn’t look at its business the way Wall Street does. He sees Apple as an entire ecosystem built on itself. If a user owns an iPhone, they’ll have a better experience if they also use Apple software and services a lot, and may be more likely to buy AirPods or an Apple Watch – or an Apple One bundle. The whole ecosystem is the bundle.
If Apple releases the Apple One Pack this fall, it won’t be talking about P / E ratios or the value of the company as a software plus services company. He will more likely highlight the quality of his services and why to offer customers more benefits by being part of the Apple ecosystem.