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  • Morgan Stanley Analysts Predict that Apple Can Hit $3 Trillion Market Cap on Shift to Subscription-driven Services

In January, Apple’s market cap touched $3 trillion for the first time before the downturn in stock valuations hampered it.

According to Morgan Stanley analysts, the market value of Apple Inc (NASDAQ: AAPL) could hit $3 trillion if it switches its business model. Analysts at Morgan Stanley explain that one sure way for Apple to hit this target is by focusing more on its already installed base of products and services. The analysts believe this is a better course than trying to maximize the unit growth and manufacturing new hardware products. Led by Erik Woodring, the team said:

“We believe a more pronounced shift to a subscription-like model could add roughly $1 trillion to Apple’s current market capitalization.”

The Morgan Stanley team of analysts further stated:

“As we’ve long argued, Apple’s industry-leading retention rates and expanding ecosystem of hardware and services has already created one of the world’s most valuable technology platforms.”

The team also says that Apple’s business model is shifting from maximizing hardware shipment growth to maximizing installed base monetization. Apple already seems to be on this trajectory as it tries to regain value ceded during the tech slump. The tech heavyweight’s increasing disclosures on services revenue and its installed number of users is indicative of this switch. Furthermore, Apple’s transition from reporting iPhone units also serves as added evidence of the shift in the business model.

Apple Previously Hit $3 Trillion Before Enduring Tech Market Slump

In January, Apple’s market cap touched $3 trillion for the first time before the downturn in stock valuations hampered it. In addition, fears of looming inflation and a stagnating economy also led to reduced consumer appetite for Apple devices. As a result, the consumer electronics giant’s stock has plunged 16% since then, leading to a sizable drop in market value. Notwithstanding, Apple is currently the largest company in the world by market cap with $2.6 trillion. The tech giant once again leapfrogged Saudi Arabia Oil Co. (Saudi Aramco) to the summit after ceding the position in May.

By embracing a subscription-like model from the vast number of its devices already in use, Apple has a clear path to this target. In addition, going by Morgan Stanley’s position, shares of the consumer electronics powerhouse could rise to over $200 a pop. Putting this in perspective, Apple’s shares closed at $153 on Wednesday.

Other Key Notes from Morgan Stanley Analysts’ Projected Business Model

Woodring provided further insight into the rationale of his Apple ‘lifetime value model’. According to this model, Apple users will spend $2 daily on the tech giant’s products and services. Already, iPhone users in the United States have hit this figure.

Woodring also points out five key characteristics that successful subscription businesses imbibe. They are large and stable markets, high retention rates, an inclination to raise customers’ spending over time, strong customer acquisition, and sustained monthly or annual pricing. According to the Morgan Stanley analyst, Apple has the first four but is yet to fully adopt the last one.


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