You know what the Holy Grail of revenue is? Service revenue that you don't mind paying because it represents a valuable asset that you can't live without. You don't jump up and down and scream like it is a tax or some sort of bill you resent shelling out hard-earned money for. Hence, why I used the term "asset" rather than a cost.
Who has that service stream that I think is an asset and not a cost? How about Costco (COST)? I am proud to be a Costco member. I regard it as one of the great breaks of all time, and if I have spare time and there is a Costco, I am going to it. The other day I was going to the White House Correspondents Dinner and my wife, Lisa, said my wallet was too stuffed and it looked terrible and wrecked the tailored tux look. I took it out of my pocket and pulled out a bunch of stuff and showed her how I had made it thinner.
She said it wasn't thin enough and she grabbed it, opened it and immediately asked, "What the heck, why are you leaving your Costco card in? You're not going to Costco tonight." I said I am never without my Costco card and I am not going to start being without it tonight. I left it in and took out a bunch of ones and fives. Let's call it brand loyalty.
The second one? Netflix (NFLX). Memo to CEO Reed Hastings: I would easily pay double for it. Why not? It is a ridiculous bargain given how much I love the original content and I am addicted to all sorts of their shows, not just the famous ones.
I don't know how much I pay for Amazon (AMZN) Prime, but that's a revenue stream that's an asset beyond belief. I showroom a ton of retailers and then use Amazon Prime. I no longer walk across the street to get toilet paper or paper towels. Too bulky. Amazon Prime. Gladly pay much more for it. (Amazon is part of TheStreet's Growth Seeker portfolio.)
And now another revenue stream appears on my email and it, too, is an asset. My service stream from Apple (AAPL). One of my family members recently lost his iPhone. He hadn't backed up his pictures. He's out his pictures and it's miserable. A total loss. We have billions of pictures. So we pay for iCloud backup. Who cares how much we pay? We've learned the lesson. It doesn't matter, get the backup. (Costco and Apple are part of TheStreet's Action Alerts PLUS portfolio.)
Apple's got a family music plan. I get it. I don't know how much it costs. I asked my wife today before I wrote this. She told me. I said I'd pay more. It's an asset.
Last night, CEO Tim Cook talked about the service revenue stream and how it is growing like a weed, greater than 20%, and how one day people will pay up for Apple's stock because of that stream. There are a billion Apple devices, a number that's going to grow and grow, whether it's because lots of people are buying the latest iteration, the SE, or the 7, or whatever else is out there. When you buy that device, the relationship with Apple doesn't end, it begins, and it includes the assets you pay for. It's like the razor I buy from Gillette. I pay a fortune for the blades, too much frankly, but not to value Gillette for that stream is just plain stupid. It's where the money is.
You know what? It is no coincidence that I like every stock I just mentioned here. Service revenue is recurring, predictable and lucrative. Apple joins Costco, Netflix and Amazon, with assets that I pay for without thinking about it, because of its value.
One day people will realize that you can't value Apple only for the device. But by the time they realize it, I think Apple's stock will be higher, not lower, because we will put a big value on that stream. If you don't think so, if you think it's just a dodge that the company uses to hide a slowdown, trade out of the stock. Don't bother me. However, as is so often the case with this company, right when people are losing faith, something new comes along that you can't live without. To me, the stream's another reason to own, not trade, the stock of the largest company in the world.