Morgan Stanley Analyst Digs Apple Hardware Subscription Idea

29 MARCH 2022 - A note from Morgan Stanley analyst Katy Huberty may have helped buoy Apple shares despite the iPhone SE note from Nikkei. Apple 3.0 had Huberty publishing a note Monday in reaction to talk of Apple hardware subscriptions. Bloomberg ran a piece late last week saying that “Apple is working on a subscription service for the iPhone and other hardware products…” That piece said that Apple wants to make that happen by the end of this year, though the company could push the plan to next year or drop the idea entirely. 

Despite that heaping helping of uncertainty, the idea’s worth considering in Huberty’s estimation. Quoting her note:

…a pivot from selling hardware products in the traditional price x units model to monetizing Apple’s >1 billion user base through bundled monthly subscription offerings could drive meaningful upside to Apple’s share price today given the growing lifetime value of an Apple user.

And you will pay, in her estimation. After doing a bit of back of the envelope math, Huberty’s note says:

…Apple users spent slightly less than $1 per day on all Apple products and Services in 2021. Compare that with your average daily coffee, lunch or transportation bill, and it’s easy to see how the ceiling on Apple daily spend per user is well ahead of current trends given 1) the importance of the Apple technology platform to user’s everyday lives, 2) high user engagement rates for Apple products and services, 3) industry leading loyalty rates, and 4) the optionality of integration with future product launches in adjacent markets like AR/VR, home, payments, health and autos. We are confident that the average Apple user’s willingness to pay for access to their Apple devices and services is meaningfully higher than $1/day or $30/month.

Huberty has an “Overweight” rating on Apple shares. Her price target on the shares is $210.