Apple One: The Most Important Announcement
Apple unveiled a number of attention-grabbing products during its September event, held this past Tuesday. The new iPad Air got quite an appealing facelift, while the Apple Watch Series 6 with blood oxygen monitor added health and wellbeing applications to the wearable device.
However, there was one announcement that most Apple users and enthusiasts probably paid little attention to. In my view, the Apple One service bundles were the most important development for investors, some of whom may not have yet fully appreciated the importance of Apple’s strategic move.
A boost to services segment
First, let’s revisit a topic that most Apple investors are already very familiar with: the services segment is a key tenet in virtually any bullish thesis on the stock. The Cupertino company managed to double service revenues between 2016 and 2020 to a whopping $50 billion per year, or about $12.5 billion per quarter (see graph below). The focus on monetizing the user base through service sales remains, and the path forward for the segment continues to look promising.
That said, not all of Apple’s services have been successful. I estimate that the App Store, iCloud, Apple Care and Apple Music have been, by far, the largest contributors to service revenues over the past few years. On the other hand, newcomers like Apple TV+, Arcade and News+ have failed to gain much traction.
This is where Apple One solves a huge problem. Let’s take a look at the three different tiers offered and their pricing.
The family plan has been priced at $20 per month, with a free trial period at the start. Within this bundle, the popular iCloud (at the lower price and storage level) and Apple Music, if bought individually, would cost users about $16 per month. Therefore, for a small amount of only $4 per month, Apple TV+ and Arcade, not top-of-mind services for most people, can be added to the package.
Then, of course, there is the $10-per-month upgrade to Premier. For about the same amount of money that it would cost to upgrade to the more useful top-tier iCloud plan, users can also have News+ and the just-released Fitness+. Having the latter, by the way, is an incentive for consumers to buy an Apple Watch.
Apple’s One service bundle is all about nudging users to not only sign up for services that most want (Music, iCloud), but also for those that most people rarely think about (News+, Arcade). In my view, this could be the solution to the lack of traction problem seen in parts of Apple’s services offerings.
Apple One is, in my opinion, yet another reason for long-term Apple investors to be even more bullish about this stock.
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