It doesn't matter until it matters more than anything else.
I'm talking about the service stream that Apple's (AAPL) pretty much backed into, something that simply didn't have enough critical mass to matter until, well, now.
Sure, we have been hearing for a couple of quarters that Apple's service stream was so big that it's as large as a Fortune 100 company. Then you would Google the list and you would find a bunch of plain old companies with a market value of about $28 billion.
With this quarter, a blow-out quarter not just for China sales, not just for the much derided X, but really for services, that narrative is now gone.
That's because there are now 270 million people who subscribe to products, up 100 million year over year.
That's 170 million more people than take Amazon's (AMZN) Amazon Prime, that's 130 million people more than take Time Warner's (TWX) HBO, that's more than double the number that takes Netflix (NFLX) and given the installed base of 1.3 billion it will soon be enough to overtake Visa (V) domestically although it still has to double again to top the number of Visa International members.
And therein lies the word that the Apple people haven't even thought of yet, members. They haven't thought of it because I believe they never really thought of themselves as a razor - razor blade model business because they are technologists at heart, as they must be.
But in a world where there is almost no brand loyalty - go listen to those pathetic consumer product group company calls, they are painful - we have found one brand that has staying power, the Apple brand, with 99% satisfaction.
Believe me if you are working at a Procter (PG) or a Unilever (UL) or a Colgate (CL) or a Coca Cola (KO) or an Anheuser Busch Inbev (BUD) you are shaking when you hear those numbers. Those legacy companies are now being switched from every day. Not only is there no brand loyalty there is brand disruption everywhere. Private labels, no names, web brands, all pitted against each other in a totally repugnant price transparent way, repugnant that is if you have spent billions trying to indoctrinate people to use your brand.
Now the analysts don't want to hear it as they think Apple makes a dumb machine with features no one gets excited about anymore, features like higher resolution cameras and facial recognition - something by the way that the Chinese must love as much as we seem lukewarm about it, or the sales wouldn't be as tepid here. They want to keep tracking key semiconductor parts to make a model and then figure out how much Apple will give back in terms of buybacks and then slap a buy or a hold on the stock.
I have long argued that it is just the lunacy of Wall Street that Apple is covered only by tech analysts. You give it to consumer packaged goods analysts and the stock, which sells at 14 times earnings would be up against, Coca Cola and Colgate at 20 times, Clorox at 19 times, or even lowly Procter at 17 times.
Except now with this service stream membership - again emphasis on membership - you have to start thinking much bigger. The razor blade will soon pass the razor as the growth engine and if they play it right Apple could have backed into something that's faster growing and stickier than any particular iteration.
They will have backed into a stream that grows even if they don't issue a new phone. Heaven forbid they actually create one that finally makes these analysts excited.
Critical mass gives Apple something that all these membership companies crave: the ability to sell into a channel of their own making.
Now Apple famously isn't going to sell your name to anyone. That's what Facebook (FB) does, not Apple.
But think about it like this: Apple pay, Music - 40 million people there, putting pictures in the cloud, all well and good. You could have an affinity credit card alone that could add billions right to the bottom line by doing nothing except contacting Visa. You could have a buying group. You could have an online Costco-like (COST) membership where you can get a deal on a watch or earbuds that would crush any competition.
However, they are nothing compared to what Apple could do right now with one field that it seems very intrigued by health care. You know how you always have to fill out those stupid forms every time you go to a doctor and sign 10 times? If Apple wants to, it could create Apple health and for $15 a month, everything's run through it: all your info on your phone, all your scrips, medical history. Everything. You could put it on your watch, too.
That could be huge.
Now let's hope they've thought about it because then 2019 will be a gigantic year and the margins? How about, what, 90%.
Or is that too low?
Yes, it's that good a razor blade, much better than the razor will ever be.
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