Apple Inc. (AAPL) stock has not been its normal self recently. Uncharacteristically, it’s lagging the S&P 500 in the trailing one-, three- and six-month periods.
It’s off 12% in the last half-year, and valid concerns about the growth Apple shareholders can expect from a struggling China are holding the stock back.
But while we hear an awful lot about the iPhone 6s, the iPad product line, Apple TV and even the Apple Car, we rarely hear about the role Apple Pay could play in stoking the AAPL stock price.
Considering that Apple Pay essentially had a coming-out party yesterday, revealing several large retailers that will gain compatibility with its mobile payments service … well, it’s time to think about what that means for AAPL stock.
Time to Scale!
Apple Pay VP Jennifer Bailey announced yesterday at the Code Mobile Conference that AAPL’s mobile payments service is in soft testing with several major retailers — but that will be changing in 2016.
In other words, it will finally become relevant. But does that make it relevant to AAPL stock?
Certainly not in fiscal year 2015, which ended in September. And probably not in FY 2016, either. But in FY 2017 and the years beyond, Apple Pay becomes very interesting, precisely because its trajectory is unpredictable.
“Unpredictable” has negative connotations, though. The more apt descriptor is “flexible.” Apple Pay has the opportunity to change with the industry — or to change the industry itself.
AAPL bull and famed activist investor Carl Icahn projected the following revenue streams for Apple Pay in an open letter to Apple CEO Tim Cook earlier this year:
“…after an insignificant financial contribution in FY 2015 we expect Apple Pay to gain acceptance at more retailers and for Apple to expand the service internationally. Our forecasts for revenues (also equivalent to gross margins as the variable costs are de minimis) are $263 million in FY 2015, $1.2 billion in FY 2016, and $3.3 billion in FY 2017.”
Let’s assume Icahn is in the ballpark with these figures. He’s been pretty on-point with AAPL stock thus far, buying $3.7 billion worth of shares at an average price of just under $70. His prediction that Apple Pay would expand internationally is essentially coming true with the KFC rollout, since KFC has a heavy presence in China.
In FY 2017, Apple might conservatively be expected to have $250 billion in revenue, making Apple Pay’s $3.3 billion a small piece of the company’s story. But consider two things that make it a far more meaningful piece of the pie going forward:
- Similar efforts from Alphabet Inc. (GOOG, GOOGL) aren’t doing that well either, with some customers complaining of hang-ups at checkout.
- Remember Apple Pay’s flexibility? There’s been speculation that it could eventually morph from a middleman to a payment processor itself, rivaling the likes of Visa (V), MasterCard (MA), and American Express (AXP).
So, can Apple Pay really drive AAPL stock higher? Not this year or next year, and maybe not even the year after that.
But longer-term, don’t be surprised if we’re talking about Apple Pay as the growth driver for AAPL shares.
As of this writing, John Divine was long shares of AAPL stock. You can follow him on Twitter at@divinebizkid or email him at firstname.lastname@example.org.
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