Apple's rumored hardware subscription offering could boost earnings by increasing the frequency with which customers upgrade their devices, a Wall Street analyst said. Apple stock fell on Friday.
Deutsche Bank analyst Sidney Ho said hardware subscriptions would be modestly accretive financially to Apple in the short term.
"More important than the short-term EPS (earnings per share) accretion opportunity in our view, however, is the opportunity to reset consumer expectations of how often to refresh an iPhone and to get more consumers to try other Apple subscription services," Ho said in a note to clients Friday.
In recent years, iPhone owners have been holding on to their handsets for longer periods between upgrades.
Apple Stock Drops
On the stock market today, Apple stock sank 1.2% to close at 170.09.
Bloomberg reported last month that Apple was working on a subscription service for the iPhone and other hardware products. The move would make upgrades more regular and predictable, the report said. The service would be akin to an auto-leasing program, Bloomberg said.
Apple's iPhone revenue already is highly recurring as few users switch from an iPhone to an Android device, Ho said.
"If the hardware subscription service gains meaningful traction, we could see (Apple stock) valuation re-rate higher as investors give a higher valuation for the more traditional recurring revenue business model," Ho said.
Ho reiterated his buy rating on Apple stock with a price target of 210.
Apple Products Worth More Than $1 A Day
Morgan Stanley analyst Katy Huberty said Apple hardware subscriptions would pivot the investor narrative from transactional sales to recurring sales across the company's customer base of more than 1 billion users worldwide.
Hardware subscriptions would be a way to better monetize the company's installed base of users, she said in a March 28 report.
"The average Apple user pays only $1 per day for their hardware and services," Huberty said. "Their willingness to pay for the technology platform that controls their life is likely much higher."
She added, "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."
Huberty rates Apple stock as overweight, or buy, with a price target of 210.
Two Possible Buy Points For Apple Stock
IBD analysis indicates two potential buy points ahead for Apple stock.
First, it has formed a handle on a double-bottom base with an entry point of 179.71. Second, that pattern is part of a 14-week consolidation with a buy point of 183.04, according to IBD MarketSmith charts.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
