Apple’s market cap has been hovering a little under the $3 trillion level the stock first hit in late 2021. A speculated move to offer hardware subscriptions could push it over the top.
In a research note published Friday, Deutsche Bank analyst Sydney Ho examines the potential consequences from a recent report speculating that Apple (ticker: AAPL) could launch a hardware subscription program—the iPhone equivalent of leasing your car, or renting an apartment. The idea would be that you could get a high-end phone via a monthly payment, rather than an upfront purchase.
As Ho readily concedes, there is not much to go on here. Apple hasn’t announced anything, and even the Bloomberg story that triggered the widespread discussion of this idea had few details on how the program would work. But he adds that he finds it clear that a hardware subscription program would be “financially accretive” to Apple, although only modestly in the near term.
Beyond the short-term earnings impact, Apple has the chance “to reset consumer expectations of how often to refresh an iPhone and to get more consumers to try other Apple subscription services,” he writes. The analyst says there is a chance that meaningful adoption of a subscription-based pricing option could spur’s Apple’s valuation to “re-rate higher” as a result of a more attractive recurring revenue business model.
The biggest factor, in other words, is that the iPhone replacement cycle could accelerate, as customers shift to more frequent updates to new hardware. Many iPhones are on 24-month payment plans, while the refresh cycle runs about three years, he notes. A subscription would likely change that, he says.
“A hardware subscription model will keep all subscribers on a 2-year refresh cycle and we believe could drive even some consumers who choose not to do the subscription program to upgrade sooner as more of their peers return to a 2-year refresh cycle,” he writes. “We are confident that a subscription service would overall shorten refresh cycles for both consumers who choose and do not choose to participate in the hardware subscription service.”
And he adds that bundling services with iPhones could “drastically improve” adoption of Apple TV+, Apple Music, and other services.
Ho maintains his Buy rating and $210 target price on Apple shares.
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