Apple Eyeing 2020 To Capture The Largest Slice Of Global Business

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Mar 03, 2015

Apple (AAPL, Financial) is on track to quadruple its total addressable market over the next five years as it enters new markets, according to Morgan Stanley's (MS, Financial) Katy Huberty in a very optimistic research report released this week.

Katy Huberty reinforced her rating on Apple saying her price target would be raised from $133 to $160. Huberty emphasized the need for Apple to be evaluated as a "platform company" rather than a tech hardware firm. Tech platform companies include Google (GOOG, Financial) and Facebook (FB, Financial).

Apple’s stock is up more than 15% this year, boosted by a strong holiday-quarter earnings report, hitting a $119.85 buy point out of a flat base on Jan. 29.

According to Huberty, tech companies are like sharks in that they need to keep moving, evolving, expanding and entering new markets in order to improve their platforms and ecosystems. Her estimates show Apple currently touching one-third of its users’ time and three-quarters of their free time.

Basis of bullish temperament

Using U.S. Department of Labor statistics about how Americans spend their time, Huberty is able to examine three new product categories with which Apple could dramatically expand the reach of its ecosystem. Such an ecosystem where profit margins and stickiness are already the envy of the tech world:

  • Apple Watch – A Morgan Stanley survey shows 10% of Apple’s current customer base will buy the soon-to-be released Apple Watch. By monitoring our health and sleep patterns, Apple will soon invade the 40% of our day we spend sleeping.
  • Apple TV – Currently Americans aged 15 and older spend an average of three hours daily watching television – which works out to 12% of their day and 25% of their free time. Huberty’s faith in Apple to curate content could be the standout feature in Apple TV.
  • Apple Car – Americans spend up to 10% of their free time traveling mostly in private cars. Huberty predicts a day very soon when Apple will help make the car the fourth screen after PCs/tablets, smartphones and TVs.

Apple’s expanding ecosystem, which includes both the Apple Watch and CarPlay, is creating a virtuous cycle that could quadruple Apple’s total addressable market (TAM) by 2020. Apple’s iOS based CarPlay, which brings iPhone features to the touch screen control panel on a car’s dashboard, rolled out in various car models in 2015. Morgan Stanley also believes its natural for Apple to expand beyond infotainment to the rest of the interior, especially in light of driverless-car technologies beginning to be more integrated within newer models and vehicles.

Valuation and journey going forward

Shares of Apple traded up 0.2% to $128.71 in recent trade and now more than 71% over the past year.

Huberty proclaims Apple has the most valuable technology platform in the world. "Its users are the most loyal and are willing to often pay a premium for the best user experience," she said. "They spend more, as developers and merchants generate at least twice as much its revenue on iOS vs. Android. A strong platform becomes a virtuous cycle, as many users buy multiple devices and more software and services, which in turn attract more developers, merchants and partners. This improves the whole ecosystem, which helps Apple attract and lock in new users.’

Forecast

All signs point towards Apple having yet another successful year with great product launches in the cards such as Apple Watch, Apple TV 3, a new iPad and the Apple Car. Their technological ecosystem and customer base adds to their brand value and their growth. It is extremely easy to remain bullish on the company who will soon competing in $3.4 billion markets. Investors would serve themselves well by cashing in on Apple right now and stockholders should see a sizeable rise in stock value in the next quarter itself.