Neil Hughes
Investment firm Piper Jaffray continues to believe that Apple's services business is vastly undervalued by Wall Street, as the company reiterated this week that services should be a larger focus for investors.
Analyst Gene Munster issued a note to investors on Wednesday noting that shares of Apple's chief rival, Google, trade at about about 19 times the company's projected calendar year 2017 operating revenue, excluding net cash.
Applying that same metric to Apple would imply a valuation of around $264 billion for the iPhone maker's services business, Munster said. That compares to a current market capitalization of around $590 billion with $160 billion in cash.
Munster said using Google as a comparison seems to him to be the most fair way to judge Apple's services business. But he acknowledged that the tight integration between Apple's hardware and software makes it a difficult comparison.
Even if investors were to take a "safe" approach and halve Google's projected calendar year 2017 multiple to 10 times, that would still place Apple's services business as being worth $139 billion, he said.
Munster noted earlier this week that Apple's services business grew profit margins by 60 percent in 2015. He expects that growth to continue as the company leverages its huge installed user base.
Apple itself has been placing a greater focus on its services business in recent earnings reports. And Munster believes that Apple's continued focus on it will resonate with investors — Â eventually.
"Apple's current valuation seems to understate the value being created by the Services business, and we expect the awareness of this to grow over the next several quarters as Apple continues to give more detail on the segment," he said.
Piper Jaffray has maintained its "overweight" rating for shares of AAPL, with a price target of $172.
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Thomas Sibilly
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24 Comments
That a lot of BS.
The main reason why the Apple service business is successful, is the iPhone (and to a lesser extend the other devices). And for the record, there is nothing wrong with that.
Without the iPhone ecosystem, the Apple service business would have a lot of difficulties to differentiate itself from the competition.
Nobody would consider using iCloud: it has less functionality and is more expensive than Dropbox, OneDrive, Google Drive, .... If the service business could stand on its own, there should millions of Android only users having a subscription for Apple Music.
The point isn't that the business could exist on its own, but rather to try and determine a value for it.
Given the amount of money that Apple returns to their shareholders each year, and with the cash generated each year, Apple's stock price is basically valued at the company not existing in 10 years (if you take the view that the current stock price is meant to reflect all expected future earnings).
Gene. Munster. Enough said.