Gene Munster, tech genius, managing partner at venture capital firm Loup Ventures and one of the most well-known analysts to cover Apple Inc. (NASDAQ:AAPL) is back at it again, angling for a shift to better iPhone visibility. For company whose mammoth iPhone base stands tall, this poses big prospects for stability in future sales, wagers the research analyst.
Whether the numbers of iPhones in use today sink to 700 million or scale up to roughly 800 million, even the lower numbers look good to Munster; especially compared to the merely 200 million iPhones the Street calls for Apple to sell this year and next. Should iPhone users remain loyal, the analyst predicts the tech titan can sell each year a “steady” 220 million units. According to the analyst’s firm Loup Ventures as well as IDC, “This ignores the opportunity of market share growth, which is currently at about 16% of the smartphone market.”
“Our perspective that the iPhone will be a stable business for the next few years will be the most controversial of the four pillars to our Apple as a Service thesis. Based on the size of the active iPhone install base (~805M), along with a stable replacement cycle and iPhone retention rates above 90%, we believe the iPhone business can continue to grow units and revenue in a predictable (0-5%) range over the next several years. The stable iPhone business is the foundation of a thriving services business. The combination of stable iPhone and >15% Services growth can generate $40-$50B annually that they can return to investors,” argues Munster.
Regarding capturing market share, the analyst is not as confident that the iPhone can grab substantial share of the flip phone market; especially keeping in mind even the cheapest iPhone of $349 could prove unaffordable to some. Meanwhile, what of longer iPhone replacement cycles? Should consumers hold on to phones for greater lengths of time, this could negatively shake up iPhone demand. After all, if the whole base keeps old phones for an extra 3 months in a specific quarter, iPhones sold in that quarter would dip by 18 million units or 8%- taking down “a stable business into one that is declining at near double digits.” Yet, Apple’s team would argue that its “reliability” is a strong upper hand, and that is why it “lasts longer.” That said, Munster sees an iPhone business that for six quarters in a row has posted solid results, a record in Apple’s history.
Ultimately, the tech titan’s brand loyalty is strong, considering as time passes, it is more challenging to set apart the iPhone from the Android, notes Munster. Retention rates nonetheless trend past 90%, as most users that own an iPhone have the intent of holding tight to it. Meanwhile, Apple’s “premium” average selling price also speaks for itself, a jump from last year’s $655 to $728. For those who have rumored for years on end that “feature-rich competitors would decrease iPhone loyalty,” the analyst surmises “that simply has never played out.”
TipRanks points to some positivity on the Street, but caution is looming over this big AAPL machine. Out of 28 analysts polled in the last 3 months, 16 are bullish on AAPL stock while 12 remain sidelined. Worthy of note, the 12-month average price target stands at $193.38, marking a slight 2% upside potential from where the stock is currently trading.