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Apple's Next Product Is Here (Update 1)

Updated from 10:03 a.m. to include thoughts from portfolio managers in the seventh and twentieth paragraphs.

NEW YORK (TheStreet) -- If you want to know what Apple's (AAPL) next big product is, you found out last night on the call.

After ruffling through all the iPhone, iPad and Mac sales numbers, Apple still managed to earn $14.50 per share on $57.5 billion in revenue, as revenue rose 6% year over year. Analysts surveyed by Thomson Reuters expected Apple to earn $14.07 per share on $57.45 billion in revenue.

However, it was a major feature on the iPhone 5s, TouchID, which has set in place Apple's latest entry: mobile payments.

When TouchID was introduced as part of the iPhone 5s, speculation around immediately began to think of alternate uses, not just for unlocking phones without the use of a password. Apple CEO Timothy D. Cook confirmed that last night on Apple's earnings call.

"The mobile payments area in general is one that we've been intrigued with, and that was one of the thoughts behind Touch ID," Cook said on the earnings call. "But we're not limiting ourselves just to that. So I don't have anything specific to announce today, but you can tell by looking at the demographics of our customers and the amount of commerce that goes through iOS devices versus the competition that it's a big opportunity on the platform."

Last week, The Wall Street Journal reported Apple was looking to get into the mobile-payments business, leveraging its near 600 million iTunes accounts and credit cards, with the massive number of iOS devices it sells.

Apple could not be reached for comment for this story.

Speculation surrounding this as Apple's "next big thing" has been around for some time, going back as far as to WWDC 2012, when Apple unveiled Passbook, and the hype surrounding the digital wallet was in full "go mode."

Capital Advisors Growth Fund portfolio manager Channing Smith, who owns Apple shares, believes we could see something as soon as the next WWDC later this year. "At Capital Advisors we expect news might be coming in June on the mobile payment front paced by iBeacon and the fingerprint scanner which are the first steps into what could be a robust mobile payments platform," Smith said in an email.

Mobile payments is clearly the next area of opportunity for Apple, and rightfully so. Companies such as eBay's (EBAY) PayPal, Square, Stripe, and others dominate the mobile payments market, with PayPal being the industry giant. In the fourth-quarter of 2013, PayPal generated $1.84 billion in revenue, handling over $50 billion in total payments volume (TPV) during the quarter and nearly $180 billion for the full year on 142.6 million accounts.

Conversely, Square reportedly is handling around $20 billion in TPV, up from a confirmed $15 billion in May 2013. Figures for Stripe are not publicly available.

Apple's iTunes dwarfs PayPal's accounts figure, so it stands to reason that if Apple wanted to get into this high-margin business (PayPal had a 63.5% transaction margin in the fourth quarter), it could do so, and profitably. Gross margins at Apple have been a concern for the company, as Apple is able to charge luxury prices for its iDevices, and consumers will pay them. Last quarter, Apple's gross margins were 37.9% for the quarter, so a foray into the mobile payments would only help, not hurt, Apple's industry leading margins.

Mobile payments is expected to be a huge business, with Forrester Research estimating consumers will spend $90 billion in mobile payments by 2017, up from $12.8 billion in 2012.

Stock quotes in this article: AAPL, EBAY, GOOG 

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