Apple (NASDAQ:AAPL) has gained a well-earned reputation in recent years as a company that essentially operates in its own universe.
Take today, for example. European and U.S. debt woes are dragging down stocks around the world.
But not Apple.
After closing at an all-time high on Friday, the tech giant’s shares were up more than $6, or 1.7%, at $371.06 in midday trading Monday. Meanwhile, the Dow Jones Industrial Average was down more than 130 points, or 1.1%.
The company is scheduled to report its second-quarter earnings Tuesday and everyone expects it to blow away expectations. It got some good news on Monday when a court ruled that Taiwanese smartphone maker HTC Corp. had violated a couple of Apple patents. And JPMorgan raised its target price for Apple’s shares to $450.
So, there’s all that going on.
But Rob Enderle, principal analyst at the Enderle Group, said the Apple story is bigger than today’s headlines.
“People are coming around to the fact that Apple should be valued differently,” said Enderle. “Apple’s been undervalued because it’s been valued as a hardware company. It’s really something different. It’s a different kind of beast.”
In addition to selling handsome, amusing and enormously popular gadgets such as iPods, iPads and iPhones, Apple sells what Enderle described as “annuities” in the form of licenses and contracts that generate long-term revenue streams.
In other words, the iPods, iPads and iPhones are great, but they’re a one-time purchase. Or once every few years, in any case. It’s the services, the so-called peripherals – the software, the music, the apps – that consumers utilize via those gadgets that generates continual streams of revenue for the company.
Apple Shares Zip to All-Time High
Enderle noted that Apple customers are notoriously loyal to the company’s products. And all of their various Apple gadgets are tied together via the peripherals provided by Apple. So, in effect, one doesn’t work without the other. For example, what’s the point of having an iPod if you’re not hooked up to Apple’s iTunes.
“The buyers are wedded to the product and the services and they can’t and don’t want to move,” said Enderle. “(Apple) could almost give the hardware away and still make money off the services and the royalties off the peripherals like apps.”
It’s made for a rather profitable business model for Steve Jobs’ company.
The U.S. is struggling to emerge from the worst financial crisis since the Great Depression. Yet Apple not only survived the downturn, it has thrived in a fashion perhaps unrivaled by its tech competitors.
The staggering success of the recent rollouts of its iPhones and iPads has allowed the company to move in an entirely new direction from its origins as a PC and software maker.
And Jobs has been wizard-like in correctly predicting what consumers want. (The wealthy, tech savvy ones, at least.)
None of that is lost on the JPMorgan analyst Mark Moskowitz, who put the $450 price target on Apple’s shares in a report published last week.
“Our call is that the wow factor, i.e., extraordinary upside to consensus estimates, is about to return to the model,” the analyst wrote. “We think this dynamic should lift the stock higher in coming days.”
The “wow factor.” That about sums up Apple’s business model for the past decade.
Read more: http://www.foxbusiness.com/markets/2011/07/18/apple-shares-soar-story-bigger-than-todays-headlines/#ixzz1SUrGknGg