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An analyst from Morgan Stanley believes that Apple (NASDAQ:AAPL) could add about $1 trillion to its current market cap if it shifts its focus towards a subscription-like model.
The analyst reminded clients that the market is valuing Apple as a “traditional – albeit best-in-class – technology hardware platform.” However, he believes that investors are likely to gravitate towards “a more lifetime value (LTV) based valuation approach,” he told clients in a note.
Morgan Stanley’s new LTV model – based on conservative assumptions – sees Apple stock trading at over $200 per share, which translates into a market cap of over $3 trillion.
“We see Apple’s CY22 year-end installed base disclosures – provided in January 2023 – as a key catalyst for the market to begin pricing in this model transformation, while a formal shift to a pure subscription model, reported earlier this year, would perhaps have an even greater valuation impact, in our view,” the analyst added.
The analyst already sees signs of Apple shifting toward a more recurring business model as the Cupertino-based titan looks to monetize its huge installed base.
“We believe there are five key factors that yield a successful long-term subscription business: 1) the targeting of large, stable end-markets, 2) high retention rates/a big renewal business, 3) a platform opportunity to expand existing customer spend, 4) strong new customer acquisition, and 5) subscription-based monthly or annual pricing, ideally with longer contract duration.”
