Apple Inc AAPL’s stock has always traded at a relatively low multiple for such a profitable company. The stock’s current PE ratio sits at just 10.4.
Bernstein analyst Toni Sacconaghi believes he knows why the market discounts Apple and has a creative potential solution to unlock value. According to Sacconaghi, the market is wary of Apple because it’s in the hardware sales business. Hardware comes with an inherent list of long-term threats, including elongating replacement cycles, falling prices and shrinking margins.
Instead of relying on customers to make a single $720 hardware purchase every two years, Sacconaghi thinks Apple should think more like Netflix, Inc. NFLX.
“Along these lines, we explore an intriguing proposal in this note: what if Apple offered its products to customers not as a set of stranctional products, but as a bundled monthly service (i.e., Apple-as-a-Service)?” he asks.
Sacconaghi argues that investors are already fearing saturation of the iPhone market, a phenomenon which led to the downfall of Motorola Solutions Inc MSI, BlackBerry Ltd BBRY and Nokia Corp (ADR) NOK.
Sacconaghi calculates that the cost of owning and using an iPhone currently averages out to about $3/day. He believes…
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