Apple: Hardware with Recurring Revenue Potential

Updated: Apr 8

Keypoints:

🔑 Apple hardware has recurring revenue potential due to switching costs and brand loyalty.

🔑 Apple customers tend to be loyal and buy products for many years.

🔑 Consider these factors alongside traditional financial metrics when evaluating Apple as an investment.

Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.

Investors love subscription-based (SaaS) companies for their predictable income. But Apple's hardware can be seen as similar, thanks to switching costs and brand loyalty.

Switching costs make it difficult for users to switch from Apple (e.g., iCloud storage, iTunes purchases). Brand loyalty keeps users coming back for new iPhones, iPads, etc.

Apple also benefits from a long customer lifetime value. A typical customer will buy Apple products for many years.

Considering the typical age of acquiring a first phone (16) and potential lifespan (80), customers could maintain a relationship with phone providers for an average of 64 years.

Even with a four-year upgrade cycle, the costs add up, especially for those who own multiple devices.

Person A: The Average Apple Customer (iPhone, Mac & iPad): this user spends an estimated USD$56 per month on Apple products. This considers the typical upgrade cycle for these devices.
Person B: The Apple Fan (Most Products): This loyal customer enjoys a wider Apple ecosystem, and spends an estimated USD$68 per month. This includes devices like Airpods and Apple Watches alongside their iPhone and Mac.
Person C: The Superfan (All Products including Vision Pro): Taking their Apple experience to the max, this user incorporates the high-end Vision Pro into their setup. This bumps their monthly spending to an estimated USD$141, but usually this amount will be higher since they may opt for the pro version of the other products.

Apple's model isn't exactly SaaS, but the combination of switching costs, brand loyalty, and long customer lifetime value creates a similar effect. Investors seeking predictable revenue shouldn't discount Apple just because it's not a traditional SaaS company.