Apple (NASDAQ: AAPL) made some important announcements on Monday (March 25) at the Show Time event, along with the most anticipated start date announcement the new streaming service: Apple TV +. Apple TV + was quickly stolen by the revolutionary announcement of the Apple Card. Investors, analysts and users have been paying attention to Apple Pay for many years, but the introduction of the Apple Card has been a surprise to many, and I believe that the outlook for this new development should be analyzed to see if this is the case Case is business can benefit from this new development.
What is Apple Card?
I have to say, the introductory movie about Apple Card on the company's website is not only appealing, but also promising. Investors should not be carried away by this and should try to better recognize the image of the Apple Card in the future.
The Apple Card is a revolutionary credit card that was developed by Apple in collaboration with Goldman Sachs (GS). Unlike a traditional credit card, the Apple Card in conjunction with Apple Pay is more like a virtual credit card. But there is also a physical map. a non-numbered titan card that a customer can use in any shop that does not accept Apple Pay.
Apple Card Design
(Source: The Verge)
There are some interesting features of the Apple Card that require special attention in this analysis.
Who can buy an Apple Card?
Subject to Credit Permit, Any Apple User in the US May Obtain the Apple Card And I expect the company to launch the card internationally through partnerships with global banks, depending on the success of the Apple Card in the US. Given the popularity and familiarity of credit cards in the United States, it will not automatically grow in importance in the US Close any plans Apple would have to roll out internationally.
What are the fees?
Apple claims the card has no fees, which means there will be no renewal fees, cash advance fees, over-limit fees and even late payment fees. Consumers may be thrilled that no fees need to be paid for a stunning credit card. In reality, however, late payment fees would be charged in the form of additional interest charged on the remaining amount. Even then, the total amount of fees due to Apple would be drastically lower than a traditional credit card issuer, and this should make the Apple Card attractive to consumers.
According to currently available information the annual percentage rate (APR) is given. The cost charged by Apple is 13.24-24.24%, based on the customer's creditworthiness. These rates could change if the company launches the Apple Card this summer.
In any case, the average APR calculated by Apple seems to be the same as the average APR for credit cards in the EU US
Average annual counter for credit cards in the US
(Source: Credit Cards)
Is there a reward program?
Yes, there is, and unlike many traditional credit card manufacturers, Apple places these rewards directly as cash directly into the Apple Cash account or the Apple Cash account as an offsetting book, and all these rewards are instantly pro Transaction paid. The company is certainly trying to add a touch of innovation, and the increasing popularity of consumer rewards will make the Apple Card a favorite among reward buyers.
How to contact Apple, the credit card company?
We all know how to contact Apple, but it's even easier to get in touch with Apple Card because it can be done simply by sending an iMessage through the integrated platform. This will provide consumers with more convenience, and considering how consumers have preferred to pay premium prices for the purchase of products and services that provide added convenience, I believe that the Apple Card will be published in this release Summer would be enthusiastic by consumers.
What are some additional features of the Apple Card?
The Apple Card will be integrated into the Apple Pay app, and the app will provide customers with an optimized experience. Apple Card users can use the Apple Wallet app to see how much has to be paid to avoid interest, the relevant due date for the minimum payment, the total amount allocated to the card in different segments, and the achieved rewards as well.
How will the introduction of the Apple Card affect future revenue?
Apple will certainly focus on existing customers to increase the company's future revenues, and the introduction of the Apple Card may be seen as a further growth measure on the company's existing customer base.
Over the years, the number of Apple Pay users has increased exponentially, providing the company with a readily available market for the marketing of its credit card.
Number of Apple Pay users in the US as of mid-2018
With over 38 million users and growing growth, Apple Pay is certainly one of the most popular digital wallets in the US, and I believe that Apple is tapping the right market to engage in the financial sector. Digital purses have become more popular in recent years, and the growth of e-commerce and the gig economy has certainly helped Apple Pay to grow rapidly.
From a macroeconomic point of view, the rise of pure digital banking services will provide tailwind for Apple Card, and the massive brand loyalty that is associated with Apple, coupled with the possibility of attractive deals in the first days of the card, will be consumers Give reason to opt for an Apple Card.
I believe there are a few ways that Apple can benefit from the introduction of the Apple Card.
First, the company will add new sources of revenue from the credit card segment through the interest it has received from consumers. The number of non-cash transactions is growing at an excellent level worldwide, and the value of non-cash transactions in North America is expected to reach $ 212 billion by 2021. This provides robust growth opportunities for credit card issuers and other types of non-cash payment service transactions, and Apple can benefit from it through the existing Apple Pay service and the recently announced Apple Card.
(Source: Capgemini / BNP Paribas)
The overall addressable market for Apple is enormous, and I believe the company will temporarily penetrate this growing sector. Investors should never miss the competition of existing players, but Apple has already laid the foundation with the success of Apple Pay.
There are some assumptions that an investor should make if he wants to estimate sales of the new Apple Card will bring in the company. These include:
- Number of Apple iPhone users in the US by the end of next 5 years
- Number of Apple Pay users
- Number of Apple Pay users signing up for the Apple Card
- APR billed for Apple card
- Calculation of Apple's share of sales
Trefis has updated a model that allows investors to estimate the revenue of Apple Card by 2022, and their baseline scenario suggests Apple's revenue of more than $ 1 billion card by 2022.
I believe that building a model at this point creates many uncertainties because limited data is currently available on this product. However, I am confident that Apple will make solid progress in acquiring a new customer base for the Apple Card. However, maintaining this customer base will be the real challenge for the company, as this requires a better understanding of the behavior of consumer credit and timely offers requires users.
This is just one way in which the company would benefit from the introduction of the Apple Card. I think Apple will be offering attractive offers for upgrading to the latest iPhone models with the Apple Card, and this should give momentum to iPhone sales in the future, though not significantly. The company can generate a healthy revenue stream by signing up for other Apple services such as Apple Music and Apple TV + when signing up for Apple Cards.
Finally, the introduction of the Apple Card will further enhance the ecosystem and the company's will lead to greater user engagement within the ecosystem. The company has consistently emphasized its strategy of focusing on existing Apple users, and the brand new Apple Card is just another product designed to increase switching costs and help the company build its loyal customer base. A higher loyal customer base provides Apple with even more opportunities to introduce a wide range of products and services to further monetize its installed base.
Apple's recently implemented pricing strategy continues to attract a high-spending clientele, which should increase the expected revenue from the credit card segment.
I believe Apple Card is just the beginning for Apple in the financial sector, and the company is likely to introduce more products and services in the future to penetrate this sector. More. Whether this will be successful in this segment will only become apparent over time, but I see clear growth opportunities right from the start.
In the short term, I expect Apple's revenue to be boosted by interest income. However, I do not believe that the aggregate interest income would make a significant contribution given the size of the company. In any case, it would be a while before the Apple Card prevailed in a highly competitive market. However, the long-term outlook for Apple is much brighter, as the company's Apple Card can generate significant sales of a few billion dollars. Most importantly, the Apple Card will help the company grow its intangible assets
So, I believe the Apple Card will bring the most value to the business. While I do not expect earnings to be significantly impacted by the issue of the Apple Card, I expect that the release of the card will create an intangible value for the Apple ecosystem and help Apple to gain a competitive advantage over its competitors. In the long term, incremental sales of a few billion dollars should slightly increase earnings per share. However, the Apple Card could be helpful in shortening the replacement cycle of Apple devices by offering attractive discounts to Apple Card users
If Apple is launching the Apple Card internationally and focusing on providing other financial services, such as Peer-to-peer transactions, online banking facilities, or even robotic advisory services, the company earns billions of dollars in revenue from this growth, taking into account the growth of these segments. However, it would be a long time before Apple introduced such services, and the introduction of the Apple card could be the first step on the way to becoming a financial services provider. In that light, I see the Apple Card as a smaller step in the long run rather than as a sensational product that takes the business to the next level.
At the current market price of $ 190, investors should be wary of investing in Apple. Considering that the recent Apple-rolled services take time to gain traction and the decline in iPhone sales, I believe investors would be better off waiting for a higher margin of safety to enter the business to invest.
Currently trading is close to analysts' average consensus estimate.
Investors with a very long time horizon should find a very attractive bet even at the current market price, but I recommend holding Apple at the current market price and waiting a better entry point.
Where can Apple do something wrong with the Apple card?
Whether we like it or not, Apple is not a finance company, but a tech company. It's a long way to establish itself as a company that can identify consumer behavior and optimal pricing strategies for products and services offered. The existing market is full of experienced players who have made a name for themselves for products related to credit cards for decades. Apple as a newcomer will find it hard to build a loyal customer base. In any case, building a loyal customer base can take some time, as it depends on a number of variables.
Having Goldman Sachs as a partner could mitigate investor concerns, but Goldman Sachs is not an experienced player in the credit card industry in any way.
A credit card failure, however, does not translate into significant financial losses for the company, but leads to lower-than-expected earnings growth rates in the future
Is Apple focusing too early on too many things?
Global sales of iPhone products are declining, and Apple is working to become a service giant. It focuses on a number of new products and services, including healthcare, streaming, credit cards and other subscription services such as Apple Music. You might feel that the company is in a hurry to find a solution to falling sales, but I think Apple is well within its limits in finding the next billion dollar revenue stream.
Apple has been working on these new developments products and services for a few years, and it's the right time for the company to take some steps before it's too late.
The success of the Apple Card will depend on a number of variables, but in each case. In this case, I believe this new product will positively impact returns over the next 5 years. Apple may certainly work on the introduction of the credit card on a global basis, and considering that Apple Pay users are predominantly outside the US, this should represent a robust growth opportunity for the company. Once again, it's not just about how much money the company can make with this product, but also about the total value it offers existing Apple users.
Disclosure: I am / we are AAPL long. I wrote this article myself and expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose warehouse is mentioned in this article.