Apple Stock Will Get a Lift From Apple Pay

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Apple’s (AAPL) iPhone 6 and iPhone 6 Plus are setting records for sales, but the far less sexy launch of Apple Pay could be the real long-term driver of upside in Apple stock.

apple stock, aapl, apple pay

Source: Apple

Tech giants like Google (GOOG) and Facebook (FB) have payments systems, but no one has been able to dislodge eBay’s (EBAY) PayPal as the most popular way to pay for things digitally.

Everyone wants a piece of the payments pie because of how huge it is. An analysis by Accenture shows that cash, credit and debit card payments add up to about $13 trillion annually. The digital payments market is already growing at a healthy clip — as much as 8% per year, according to industry reports. If just a small percentage of those $13 trillion in transactions move to digital, this market will explode.

Apple Pay to Juice Apple Stock

The key problem with digital payments — especially mobile digital payments — is that it doesn’t really solve a problem or fulfill a need. After all, consumers don’t find reaching for their cash or cards to be so inconvenient that they’re clamoring for an alternative.

But some analysts think AAPL may have cracked that nut with the advent of Apple Pay — and that will be nothing but good news for Apple stock. Indeed, equity researchers at Susquehanna see plenty of upside to operating earnings at AAPL. That should naturally flow through to a higher price for Apple stock.

As Susquehanna analysts write in a note to clients:

“The Apple Pay mechanism is much easier than the prior attempt by GOOGL with Google Wallet. Apple Pay simply requires that one put their finger on the Touch ID sensor, present the phone, and that’s it.”

That convenience should get enough iPhone users to ditch cash and cards — and add significant if incremental growth to AAPL operating profits. Susquehanna estimates that every 1% share of U.S. credit or debit card payments grabbed by Apple Pay will add 0.1% to operating earnings at AAPL.

In even better news for anyone holding Apple stock, every 1% share of global purchases made using Apple Pay will boost operating earnings by 0.4%.

Analysts at Sterne Agee don’t see Apple Pay being the next big thing, shaking up the slow moving payments industry on the way to world domination, but analysts still see it as a driver of decent revenue. Sterne Agee estimates that larger banks will pay Apple 0.15% of every credit purchase made with Apple Pay, and half a cent for debit payments.

Bottom Line

With Visa (V), MasterCard (MA) and American Express (AXP) already on board — and Discover (DFS) expected to partner with AAPL soon — Apple Pay could finally be the killer app for mobile payments.

Only time will tell, but even if Apple Pay is only a modest hit, it should still deliver earnings and upside in Apple stock.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/apple-stock-apple-pay/.

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