Moving bitcoins through Apple Wallets is an easier way to disrupt a mega billion market than taking on Elon Musk, says analyst Mitch Steves.
From a note to clients by Steves (taking over Apple coverage from Robert Muller) that landed on my desktop Tuesday:
The Takeaway: When we look at Apple as an ecosystem player we note that the firm has industry-leading software, security and a 1.5B install base. While an electric car could be a long-term opportunity, competing with Elon Musk and Tesla (a distributed energy company) is a higher risk proposition ($10B+ in R&D cost) vs. utilizing its install base: Apple Wallet. If the firm decides to enter into the crypto exchange business (multi-billion dollar industry) we think the firm could immediately gain market share and disrupt the industry (while simultaneously making the USA a leader in crypto for the next 10-20 years).
To put some numbers around this, Square generates ~$1.6B/qtr in bitcoin related revenue on an active install base that we estimate to be in the ~30M range. Apple’s install base is 1.5B and even if we assume only 200M users would transact, this is 6.66x larger than Square.
Therefore, the potential revenue opportunity would be in excess of $40B/year (15% incremental top-line opportunity). The best part? The R&D cost would be de minimis in our view as Square’s entire R&D budget is under $1B.
Net Net: fundamentals at Apple remain secure with a cash flowing business related to iPhones, Peripherals, Computers and Services. However, the firm could unlock a multi-billion dollar opportunity with a few clicks while investing into next generation chips as well.
Maintains Outperform rating, raises price target to $171 from $154.
My take: Not as crazy an idea as Monday’s reports made it sound.
CORRECTION: An earlier version of this item described Steves’ target as Street-high. For the record, Wedbush’s Daniel Ives’ $175 still tops my chart.