While many analysts who are bullish on Apple (NASDAQ:AAPL) have tended to focus on the iPhone maker’s upcoming hardware releases, Credit Suisse analyst Kulbinder Garcha turned the spotlight on the company’s many services in a recent note to investors. Apple’s “enviable portfolio of iServices” that works in conjunction with its multiple product offerings has given the company a strategic advantage over competitors like Google (NASDAQ:GOOG) (NASDAQ:GOOGL), observed Garcha in a note obtained by Barron’s. Garcha raised his price target on Apple shares to $96 from $85.71.
“Apple has built a portfolio of services that range from the App Store, iMessage, iCloud, iBook store and now HomeKit and HealthKit. Additionally, these services are increasingly integrated across its major hardware portfolio of Mac, iPhone and iPad,” wrote Garcha in a note seen by Barron’s. “We believe that Apple’s vertically integrated structure across hardware, software and services, and across multiple products results in several strategic advantages versus its peers.”
As noted by Garcha, the seamless integration between Apple’s products and services has led the company to maintain a higher level of usage among its customers than what is seen on rival platforms such as Google’s Android and Microsoft’s (NASDAQ:MSFT) Windows. “[W]hether looking at mobile browsing, mobile commerce, or data usage, iOS devices materially outperform their installed base of smartphone units by a factor of four,” wrote the Credit Suisse analyst according to Barron’s. Meanwhile, thanks to its varied products that encompass “all aspects of its consumer’s lives,” Apple also has a “Big Data advantage” that many of its competitors lack. With its wide-ranging knowledge about its customers’ usage habits and preferences, Apple is able to improve its products and services more effectively than many of its competitors.
All of these factors give Apple’s ecosystem an unusually high level of user retention, or “stickiness,” noted Garcha. “We would argue that whether it is the customer lock-in and essential headache of leaving iOS ecosystem or the loyalty, the output is the same, meaning that once an individual or family is part of the Apple ecosystem, they will very rarely leave it,” wrote Garcha, according to Barron’s.
Finally, besides citing the many long-term competitive advantages offered by Apple’s approach to the consumer electronics market, Garcha predicted that Apple will soon gain another major revenue stream thanks to its recent acquisition of Beats Electronics, which included the Beats Music subscription music streaming service. “We believe Apple is likely to further accelerate the music subscription market’s development via its recent purchase of Beats Music,” wrote Garcha. “With iTunes stores in 123 countries, 425 retail stores, App stores in 155 countries and an army of 800mn users, Apple could very quickly scale a music streaming service, given its existing reach and music deals.”
A subscription music streaming service could become a major revenue source for Apple if Garcha’s projections for growth in this market are accurate. “We forecast music subscription services can grow from 14mn paying subscribers in 2013 to just over 148mn by 2025, with penetration of adult populations (15-64 years) rising from 5% to 20% of in each of the 10 major music markets in the world,” wrote Garcha, according to Barron’s. Despite his positive outlook on Apple’s future, Garcha maintained a “Neutral” rating on the company’s shares, while raising his price target to $96.
Credit Suisse wasn’t the only prominent firm to boost its price target on Apple shares this week. As noted by Apple Insider on Tuesday, J.P. Morgan’s Rod Hall raised his price target on Apple shares to $108 from $89, while Needham & Company analyst Charlie Wolf raised his price target to $97 from $86.32. Both analysts expect strong sales for the larger-screen iPhone 6, while Wolf also drew attention to Swift, the new programming language unveiled by Apple at the recently held Worldwide Developers Conference. Apple closed at $90.36 on Wednesday and is currently at $90.27 in early morning trading.
More from Wall St. Cheat Sheet:
- Apple Finds Middle Ground for Apps That Incentivize Sharing
- Active Android Tablets May Soon Pass Apple’s iPad: Does It Matter?
- Are Google and HTC Apple’s Next High-End Tablet Competitors?
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