Apple (AAPL) Card to Power Next Leg of Payments Platform Growth - Cowen

October 5, 2020 9:58 AM EDT
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Cowen analyst Krish Sankar reiterated an Outperform rating and $133 price target on Apple (NASDAQ: AAPL) as they see digital payments as the next multi-billion business by 2022. To this end, he believes that Apple Card will help fuel the next leg of payments platform growth.

“We expect Apple Card revenues to see the greatest growth over our forecast horizon as it captures share in the $25T+ global retail spending opportunity as more spending shifts from physical to digital payments, especially in North America where Apple has the highest smartphone market share,” Sankar wrote in a note.

“We expect Apple to remain focused on penetrating the North American market and ultimately the European one as well given the high usage of credit cards and different forms of digital payments including online and mobile/contact-less payments. We estimate digital-based global retail spending will reach $4.2T in CY20 and rising to over $6T by CY23, and assume Apple Card penetration will roughly double to 2.1% over the same period.

The analyst notes that Apple Pay Card and other cash products have shown a robust 100%+ Y/Y growth in recent years. The pandemic has only accelerated Apple’s digital payments offerings, notes Sankar.

“While Apple has portrayed these digital services as complementary to its mobile hardware platforms, we believe future scaling out of these services globally coupled with increasing depth and sophistication of them could position Apple as an emerging contender in the fintech space. We conservatively forecast overall Apple payments platform revenues will exceed $1B for the first time in CY20 and quickly exceed $2B by CY22. From an EPS perspective, contributions remain small at 2-3% of Services profits or $0.03-0.04,” he adds.

Overall, the company’s positioning within the fintech ecosystem has continued to strengthen. This is the case due to the three main drivers, according to Sankar:

  1. Apple Pay is expected to remain the cornerstone of Apple's payments platform strategy as the digital wallet continues to see increasing acceptance at US retailers (both physical and online, see here for more details). We forecast Apple Pay will remain the largest revenue driver at over $800M annually for the next couple years (~65% of payments platform) and growing at an 18% CAGR through FY23. We see scope for further expansion at European retailers as well as increased penetration in transit systems, especially in Asia.
  2. Launched in C2H19, Apple Card is the newest product within the payments business, and we forecast that it could become the largest revenue driver by FY23 growing at an 89% CAGR to $1.2B. This new revenue estimate assumes a conservative 2-3 penetration rate into digital-based global retail spending. We also assume Apple receives a 1% fee for transactions, a rate that we believe is in line with the average for card issuers and could be the most lucrative opportunity longer-term compared to the Pay and Cash products.
  3. Apple Cash provides a high demand feature to end users - peer-to-peer cash transfers, and is very complementary to the Apple Card given the cash back and cash management features. We model for Apple Cash revenues to grow but remain below $100M for the next several years as we assume only a mid-single digit % of consumer cash transfers are 'instant transfers' that could generate upwards of a 1.5% transaction fee.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $113.02 yesterday.

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