Apple has been pushing hard for an ecosystem that doesn’t solely rely on the iPhone, and more recently, the Cupertino-based tech giant has been insisting more for services.
Apple isn’t yet a services company, but it does want to become one, and analysts warn that heading in this direction is a risky decision going forward.
Andy Hargreaves of Keybanc Capital Markets explains in a note to clients obtained by CNBC that a services company needs to rely above everything on how much money it makes per user.
“If we are to call Apple a services company, we should evaluate it on typical services metrics of user growth and revenue and profit per user,” the analyst explains. “Apple’s user growth is decelerating due to market saturation and its gross profit per user has been declining. These are not particularly attractive metrics for a services business.”
Too much into hardware
Hargreaves went on to explain that hardware is still the essence of Apple, and the migration to a services-based focus could be slowed down by the company’s culture of going all-in on hardware sales.
“Apple’s breakdown of Hardware and Services revenue and gross profit is increasingly irrelevant, in our view, as changes to segment reporting have prompted Apple to book several aspects of what most would think of as a hardware sale in the Services segment,” he continued.
The analyst explains that there are approximately 420 million iPhone owners out there and the user base pretty much stagnates, which once again should be worrying for Apple moving forward.
A migration to services is something that Apple rival Microsoft has also embraced. Under CEO Satya Nadella’s leadership, Microsoft switched its focus from software to services like cloud and Office 365, both of which have become the company’s biggest cash cows right now.
Hargreaves ended his note by explaining that Apple shares are currently at their maximum value, recommending instead the purchase of Facebook and Google stock.