Apple CEO Tim Cook delivers the speech at the 2020 Apple Worldwide Developers Conference (WWDC) at the Steve Jobs Theater in Cupertino, California.
Brooks Kraft / Apple Inc / Dispensa via Reuters
For Apple investors, the hottest product the company could release this fall isn̵
Apple hasn’t confirmed “Apple One,” the suggested name for the package, but tech blog 9to5Google found code in the Apple Music app for Android earlier this week that suggests the iPhone maker will link its service. music to other subscriptions it offers, such as Apple TV + Storage, Apple Arcade, and iCloud.
If Apple One launches this fall, Wall Street investors and analysts will be happy. An Apple package has been on investors’ wish lists for years.
“We have long argued that bundling services are a unique tool that Apple has at its disposal,” Goldman Sachs analyst Katy Huberty wrote in an August note.
The theory is that an Apple package will anchor Apple’s burgeoning services business, increase subscriber numbers, and complete the perspective shift from Apple as a hardware maker dependent on annual iPhone updates, to a technology and software company with multiple lines. of recurring revenue and a self-sustaining ecosystem that can potentially drive stock prices up without having to dramatically increase product sales or prices.
Huberty wrote that an Apple package could differentiate Apple services, increase subscribers for Apple’s less popular services, integrate with Apple Pay and Apple Card, and lock customers into the Apple ecosystem. Apple has set a target for 600 million subscribers by the end of 2020 (including App Store app subscribers), writes Huberty, and a package would help meet and exceed that target.
Started in 2015
To some extent, Apple has already begun to change its history with investors. They currently give the company a much richer rating than it did in 2015, when activist investor Carl Ichan wrote an open letter to Apple CEO Tim Cook raising the idea that Apple’s ecosystem was undervalued.
As of Thursday’s close, Apple had a P / E ratio close to 34.5, according to FactSet, compared to 10.9 when Icahn wrote his letter. This was largely driven by Apple’s online services, which accounted for 22% of the company’s revenue in the quarter ended June.
Icahn, who sold his stake in Apple in 2016, suggested that Apple could increase its price / performance ratio by aggressively expanding into the TV market, and that a key part of that strategy would be a “meager package” of television programs and pay movies from media companies along with a music streaming service.
The “skinny package” was never made, nor was the physical Apple TV that Icahn had anticipated. But in recent years, Apple has taken some steps towards that 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 within the Apple TV app, users can subscribe to CBS All Access and Showtime, two streaming channels, for $ 9.99 per month, a saving of $ 11 per month over buying the two services separately.
But the idea of the Apple bundle and significant recurring revenue had caught on among people who felt Apple was undervalued at the time. Goldman Sachs analyst Simona Jankowski said in 2016 that if Apple were to own its own content, it could combine it with Apple Music and hardware like an Apple TV and iPhone set-top box for $ 50 a month. Bernstein’s analysts said around the same time that Apple would buy Netflix to create a package to fight Amazon Prime.
The concept of “Apple Prime” was born among Apple observers and fans.
It is unclear what exactly Apple will bundle at what price. It sells a number of subscriptions that give it a good start:
- Apple TV +, video streaming 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 +, an online pack of 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 subscription numbers for Apple TV +, Apple Arcade, or Apple News + since they launched 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 sign up for an app on the App Store.
The base package could start with Apple Music and Apple TV +, according to a report from Bloomberg. Additional tiers would add Arcade, News +, and iCloud storage for an additional cost, but still lower than what the services would cost separately.
One thing that is unlikely to be included in the package: hardware.
Analyst Toni Sacconaghi asked Cook directly about a hardware bundle during a conference call last fall. He did not break down the idea, but suggested that something like this was already in place.
″In terms of hardware as a service or as a package if you will, there are customers today who essentially view hardware this way because they have upgrade plans and so on, “Cook said during a earnings call.” So to some degree it 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 charges users on a monthly basis and gives them the option to swap their old iPhone for the newer 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.
Ultimately, 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 has an iPhone, they will have a better experience if they also heavily use Apple software and services, and perhaps they are more likely to buy AirPods or an Apple Watch or Apple One package. The whole ecosystem is the bundle.
If Apple releases the Apple One package this fall, it won’t be talking about P / E ratios or whether the company is more valuable as a services and software company. It is more likely to emphasize how great its services are and why it offers customers more benefits for being part of the Apple ecosystem.