Apple's Services are Teflon-like, says analyst Daniel Ives, and there are 350 million iPhone owners overdue for an upgrade.
From a note to clients that landed on my desktop Sunday afternoon:
Under our negative stress test scenario for Apple's model we now assume only the installed base consumers currently in the window of an upgrade opportunity that have not upgraded their iPhones in more than 42 months purchase a new phone over the next 18 to 24 months.
Currently we estimate that ~350 million of Apple's 925 million iPhones worldwide are in this upgrade window, as we assume going forward in a more draconian scenario that minimal new smartphone activity takes place besides this segment of Cupertino's massive installed base.
Even factoring in this more doomsday type scenario, with a services business that is Teflon-like and poised to hit roughly $60 billion in FY21 we believe the risk/reward on the stock is extremely compelling at current levels for risk tolerant investors heading into a delayed (by ~3 months) 5G super cycle thesis over the next 12 to 18 months.
Taking a step back, this is not any ordinary year for Cook and Cupertino as the company is entering, in our opinion, one of its most important iPhone upgrade product cycles ever as the drumroll for the 5G super cycle was slated to kick off in the September timeframe even though we now believe this is looking like the holiday timeframe given the current global lockdown and still damaged supply chain.
Maintains Outperform rating and $355 price target.
My take: Even Ives' doomsday scenario looks okay.