APPLE BETTING $1.1T YOU’LL WANT AN IPHONE PAYMENT
Upgrade program ‘could be a big deal,’ analysts contend
You already have a car payment and a mortgage. Why not add an “iPhone payment,” too?
That’s what Apple and Apple investors are betting on. Apple’s move to allow consumers to finance their iPhones by creating a lease program called Apple Upgrade Program turns Apple into a bond-like source of cash — rather than a tech company that must deliver annual innovation.
The rising conviction Apple’s financing plan will continue to get consumers to pay up for its smartphones is driving the stock higher. Shares have been up for days. Wednesday, Apple stock was almost unchanged at about $116 despite news that a bug has forced it to delay its Apple Watch software upgrade.
In Apple’s financing deal, consumers would agree to pay $32 a month for a 16 GB version of the latest iPhone. That includes a warranty and the right to upgrade to the latest handset in a year. But the biggest impact is on Apple’s surging finances because consumers sign up for a payment plan much like they do with car leases. Most important, Apple continues to get consumers to pay $650 for a smartphone in an era in which smartphone prices are falling.
If Apple is successful in convincing consumers to sign up for payments, the impact could be huge, analysts say. UBS estimates Apple’s stock would be worth $200 a share — or about 70% more than it is today — if valued as a recurring revenue stream. Investors love predictable cash flow and are willing to pay higher multiples for predictability.
If the financing plan provides the power to push Apple’s stock to $200 a share, it would give Ap- ple a market value of $1.1 trillion. Apple would finally become the first $1 trillion company as bulls have said it can be.
“The iPhone Upgrade Program could be a big deal,” UBS analyst Steven Milunovich says in a note to clients. UBS has a $150 a share price target on Apple stock.
Bullishness over Apple’s financing program led Angelo Zino, analyst at S&P Capital IQ, to boost the firm’s rating to “buy” from “hold” on Apple stock: “Our upgrade primarily reflects (Apple’s) compelling valuation ... our favorable view of leasing programs and other promotions by carriers and Apple and belief that downside to near-term estimates now appear less likely.”
Apple’s move to finance iPhones is seen by investors as a positive.