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The key to Apple’s success is to execute on China, execute on the iPhone and to continue to grow its services business according to Dan Ives, an analyst at Wedbush. Ives believes that the Apple services business when you look at the sum of its parts is undervalued and should add an additional half a billion dollars to Apple’s valuation over time.

Dan Ives, Managing Director and Equity Analyst covering the Technology sector at Wedbush, talked about why they believe services growth at Apple will make the company worth $1.5 trillion:

Services is the Linchpin For Apple

In our opinion services is the linchpin. When you look at it from a sum of the parts, services, we think that business alone is about half a trillion, call it $450 billion dollars. That’s really what the street now is starting to reanalyze that and the multiple continues to expand. In our opinion, the iPhone product cycle continues to be there.

It’s really about can they hit $50 billion (from services) in the next year and a half from a revenue perspective? With the sum of the parts, they’re able to do that and then you can start to justify that services business. When you add up the sum of the parts, the core iPhone business is worth about a trillion and then half a billion for the service.

China is the Fuel in the Engine

China is the fuel in the engine. Fundamentally, we don’t get to a trillion and a half (valuation) or even a stock that goes higher here if China is not a significant growth catalyst. We see about 60 or 70 million iPhones coming up for an upgrade cycle in China and we believe about 50 to 60 percent of those do get upgraded.

I think without the services they’re a teenager in terms of where they’re gonna trade. I think the services business is how they start to get that re-rating from 20-22 times earning. That’s why right now for Cook and company it’s really about not making a bad strategic move on the content side or MNA. It’s really just executing on China, execute on the iPhone strategy, and services, that’s front and center.

China is Also a Potential Pitfall

A potential pitfall is China, just given what we’re seeing in terms with trade and tariffs. Can there be a supply chain disruption and really specifically, can consumers start to digest that higher price point with the lower competition?

The post Analyst: Services is the Linchpin For Apple to Reach a $1.5 Trillion Valuation appeared first on WebProNews.

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