Laura Martin's Apple investment thesis

"The best way to think about AAPL... is through the lens of 1B+ of the wealthiest consumers in the world using AAPL devices 3-5 hours per day."

From a note to Needham clients that landed on my desktop Thursday:

We argue that the best way to think about AAPL’s valuation, pricing power, competitive advantage period and barriers to entry is through the lens of 1B+ of the wealthiest consumers in the world, each using AAPL devices 3-5 hours per day.

For any ecosystem, the value equation is unique subs x revenue/sub/year x years spent inside the ecosystem. Two key important valuation upside drivers are falling churn, because it elongates time spent inside the ecosystem, which drives upside to life-time value (LTV/user), and add-ons that grow revs per unique user. Therefore, the key leading indicator for AAPL's upside value ([our] view) is the 1B unique iPhone users owing 1.65B active devices at 12/31/20. By implication, the avg iOS user now owns 1.65 devices, up from 1.57 in Jan 2020, up from 1.55 in Jan 2019. Deeper penetration of devices per home lowers churn and raises LTV [lifetime value] per user. Services add high-margin incremental revs to LTV, and also lower churn. Subscription revs add recurring revs, and in the June 2021 quarter AAPL added 40mm subs q/q to 700mm paid subs (up 150mm y/y).

In addition, AAPL is adding new products and services that drive stickiness and ecosystem lock-in, such as: a) add-on hardware products like tablets, watches, air pods, home pods, air tags, etc; b) add-on services such as Apple Music, Arcade, AppleTV+, Fitness+, Podcasts, etc; c) family plan pricing that makes it very expensive for any person in a family to leave AAPL's ecosystem; and, d) lower priced new iPhones, carrier subsidies, financing options plus old iPhone trade-in discounts. These ancillary products and marketing decisions lower the entry barrier to AAPL's ecosystem (and raise the exit barriers).

Maintains Buy rating and $170 price target (while lowering December quarter iPhone shipment estimates to 80 million from 90 million per "channel checks and press reports")

My take:  Sensitivity to "press reports" notwithstanding, a solid thesis. What we've been saying for some time.


  1. Manfred Schwencke said:
    “The best way to think about AAPL… is through the lens of 1B+ of the wealthiest consumers in the world using AAPL devices 3-5 hours per day.”

    Finally! Investment thesis to the point!
    Add: inceasing share of wallet / number of devices and services and increasing time of use over the day (stronger log-in / higher switching costs). Hopefully, Tony S. reads this in order to overcome his multiple comparison approach of „history“ and so-called „peers“ (there are NO peers)!

    October 14, 2021
  2. Kirk DeBernardi said:
    “What we’ve been saying for some time.”

    Right? Amen, brother PED.

    Is it not a consumer snowball getting bigger by rolling uphill?

    Nothing better than witnessing an enlightenment.

    October 14, 2021
  3. Greg Lippert said:
    Psst..follow the money

    October 14, 2021
  4. Robert Paul Leitao said:
    While Apple may ship fewer units in the December quarter due to supply constraints, the short-term challenge will boost shipments in the March quarter. Suppliers will not lose business and Apple will not lose sales. If one thinks supply challenges are high this year, just wait 12 months for essentially unbridled demand. Never mind. The financial press really doesn’t look that far ahead. I’m just saying savvy investors should take a longer-term perspective on the shares that lasts beyond the current news cycle. In other words, “We ain’t seen nothing yet!”

    October 14, 2021
  5. Steven Philips said:
    But, but, but… doesn’t this just PROVE that Apple users are locked in? Apple must be punished! . /s/ (in case it’s not obvious!)

    October 14, 2021
  6. Gregg Thurman said:
    My take: Sensitivity to “press reports” notwithstanding, a solid thesis. What we’ve been saying for some time.

    And then there were four: Huberty, Munster, Ives, and now Marten.

    What I like most about Laura’s analysis is that it isn’t based on spreadsheets and charts. This is pure, unassailable logic that accurately describes what has been going on for more than a decade.

    October 14, 2021
  7. Jerry Doyle said:
    Ms. Laura Martin is a sage for her investor clients.

    Earning Season has started. It is as I anticipated. Banks came in strong. We will see other market sectors also coming in solid-to-strong. The world economy is inundated with liquidity. Savings rates are at an all time high. Workers are flushed with money. The Delta variant is slinking away. Booster shots are coming. Ramifications from the Epic saga recede into the distant past. The Holidays are upon us. People are venturing out. Airlines today announce a plethora of new international travel routes. Apple is hitting on all cylinders. At the end of the month Apple will report another in a successive blow-out quarter. Apple is a beach ball that WS naysayers of the company can’t keep pushed below the water surface for long before she “pops” topside. Apple is rolling out a batch of new products (and continuing services) in time for the Holiday Season that will carry over into Q2 2022, new products geared to facilitate the continuing transitioning of work & learning from anywhere. Laissez le bon temps rouler!

    October 14, 2021
  8. Alan Birnbaum said:
    Who is she : ( I know that credentials don’t usually mean much but ….)

    Laura Martin received her BA from Stanford, her MBA from Harvard Business School, and she holds a Chartered Financial Analyst (CFA) as well as a Chartered Market Technician (CMT) designation. Since 2009, Martin has been the senior entertainment and internet analyst at Needham & Company, where she publishes research on the largest internet and media stocks in the US

    October 14, 2021
    • Gregg Thurman said:
      Her biggest asset, in my opinion, is the ability to see the underlying forces driving revenue that go well beyond observed historical trends.

      This is so counter the “analysis” performed by Saccocrap, who has been characteristically wrong since he got a single forecast correct several years ago. With, or without, spreadsheet data Saccocrap is as blind as a bat to future results.

      October 14, 2021
  9. Gregg Thurman said:
    At midnight EST There’s a whole lot of GREEN in the Asian Indexes (inc: Australia/New Zealand). By extension that GREEN has spilled over to the DOW, S & P and Nasdaq.

    October 14, 2021
  10. Gregg Thurman said:
    Five hours later in the pre-market and AAPL is up 29c – $144.05.

    October 15, 2021

Leave a Reply