Excerpted from a note to clients last week by Needham analyst Laura Martin.
We believe the market’s obsessive focus on quarterly unit sales misses the key value driver for APPL, which is its ecosystem. The bundling of content (its app store and Services segment) lowers device churn and drives AAPL’s profit margins to be higher than Disney’s despite far lower valuations. We view AAPL’s annual September iPhone introductions as equivalent to sequels in a successful film franchise, so we are not troubled by sales variability of specific models…
Fundamentally, we think the right way to think about AAPL’s barriers to entry, pricing power, and competitive advantage period is through the lens of its ecosystem dominance of the wealthiest 15% of smartphone owners in the world. We note that Berkshire Hathaway has been steadily adding shares of AAPL over the past year, and as of 9/30/16, they owned 15.7mm shares, worth $1.7B.
Reiterates strong buy. Price target: $150.