Company / Analytics

Analytics, 25 March 2022

Apple to launch a Subscription Service for iPhones

Apple (AAPL) is preparing a hardware subscription service for its iPhones that could launch by the end of this year. Under the plan, customers will be able to buy an iPhone through monthly payments, similar to how users currently subscribe to iCloud.

Apple investors have for a long time suggested that the company sell its hardware as a subscription. Selling hardware as a subscription would boost recurring revenue while predictable subscription revenue could prompt investors to value Apple’s stock more highly.

Apple CEO Tim Cook has in the past told investors to closely watch its services business, which reported $68.4 billion U.S. in sales in 2021, growing 27%. Apple’s services business currently includes warranties, services such as iCloud and Apple Music, and sales from Apple’s App Store. Meanwhile, Apple’s iPhone business reported nearly $192 billion U.S. in sales over the same period. Apple stock has declined 4% year to date and closed trading on Thursday (March 24) at $174.07 U.S. per share.

Apple proposes a Subscription Service for iPhones & iPads

Apple is preparing a hardware subscription service for iPhones that could launch as soon as the end of this year, according to a Bloomberg report. The subscription-based model would allow customers to buy an iPhone through monthly payments, similar to how users currently subscribe to iCloud, according to the report.

The move would represent the culmination of a longtime Apple investor desire for the company to sell its hardware as a subscription. Doing so would boost recurring revenue and could lead to an increase in the stock price. Analysts have long been wary that Apple’s prodigious hardware sales are a “hits business” and believe that increasing predictable subscription revenue could prompt investors to value Apple more highly.

Apple already offers several methods to pay for iPhones on a monthly basis, including the iPhone Upgrade Program, which bundles iPhones with a warranty and free upgrades for a monthly fee, and financing with the Apple Card.

However, the program would differ from an instalment program in that the monthly charge wouldn’t be the price of the device split across 12 or 24 months. Rather, it would be a yet-to-be-determined monthly fee that depends on which device the user chooses.

The company has discussed allowing users of the program to swap out their devices for new models when fresh hardware comes out. It historically releases new versions of its major devices, including the iPhone, iPad and Apple Watch, once a year.

Strategic Shift for Apple

Adopting hardware subscriptions, akin to an auto-leasing program, would be a major strategy shift for a company that has generally sold devices at full cost outright, sometimes through instalments or with carrier subsidies. It could help Apple generate more revenue and make it easier for consumers to stomach spending thousands of dollars on new devices.

Already, the iPhone is Apple’s biggest source of sales, generating nearly $192 billion last year – more than half the company’s revenue.

Apple execs including CEO Tim Cook have told investors to closely watch its services business, which reported $68.4 billion in sales in 2021, growing 27%. Apple’s services business currently includes warranties, services such as iCloud and Apple Music, and sales from Apple’s App Store.

In 2019, Cook was asked during earnings call whether Apple would consider a hardware subscription. He didn’t shoot down the idea and suggested that Apple was working on similar products and something like it was already in effect.

Forecast - should I buy Apple stock?

The current consensus among 43 polled investment analysts is to buy stock in Apple Inc. This rating has held steady since March, when it was unchanged from a buy rating. The 37 analysts offering 12-month price forecasts for Apple Inc have a median target of 192.00, with a high estimate of 215.00 and a low estimate of 127.00. The median prediction represents a +10.75% increase from the last share price of 173.37.

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