Archive for February, 2015

How Big Could ApplePay Be? 2015 The Year of ApplePay?

Wednesday, February 11th, 2015

Tim Cook, Apple (AAPL) CEO  said,  “2015 will be the year of Apple Pay.”, and he is probably right in terms of industry change, but that should not be translated into an expectation of important fee contribution to revenue growth. 2015 may be the year ApplePay crushes the competition, but it will not be a year where ApplePay moves the dial much on total revenue or profits directly from ApplePay fees.

ApplePay is an exciting function for iPhones, and one that is likely to be more widely adopted than competing Near Field Communication payment systems.  However, talk of it creating critical direct revenue is overblown.  By the size standards of Apple, the potential direct revenue contribution to growth is quite modest.  The economic value to Apple is more likely to be in solidifying and increasing market share for iPhones.  That could be huge now and later due to ApplePay as a feature benefit, not as a blockbuster direct revenue source.

Apple is huge compared to the four leading credit card companies; American Express (AXP), Visa (V), MasterCard (MA), and Discovery Financial Services (DFS).  Here are some size comparisons:

  • The revenue of the 4 largest credit card companies is about 1/3 of Apple’s revenue
  • The net income of the 4 largest credit card companies is about 40% of Apple’s
  • The market-cap of the 4 largest credit card companies is about 50% of Apple’s

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According to one source:

Typical Credit Card Processing Costs. If you’re looking for quick numbers, here you go: the average credit card processing cost for a retail business where cards are swiped is roughly 1.95% – 2%. The average cost for card-not-present businesses, such as online shops, is roughly 2.30% – 2.50%.

Let’s conservatively say average credit card fees are 2%.

Another source, said that ApplePay will receive about 0.15% of each transaction through their system.

Here is a simplistic, but we think reasonably representative, presentation of the size of ApplePay direct fee revenue.

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ApplePay seems like a great feature that is likely to crush the competition, and become widely utilized, and improve the already excellent stickiness of Apple iPhone users.  However, the excitement about the direct fee  contribution to revenue growth is just not that key to future Apple profits given Apple’s enormous size.  Be careful when listening to media hype about “blockbuster” revenue from ApplePay.

Disclosure:  QVM does not own Apple shares directly, but has significant exposure to Apple in various technology funds.

 

 

 

Apple Is Simply Unbelievable Large. See These Comparisons.

Wednesday, February 11th, 2015

Apple is jumping into the credit card transaction business, and it’s market-cap is 1.9 times are large as the 4 leading credit card companies American Express (AXP), Visa (V), MasterCard (MA) and Discovery Financial Services (DFS).  Apple has 2.4 times there net income and 2.8 times their revenue.  They are much larger than the industry they are entering.

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The credit card companies work through banks, and Apple’s market-cap is larger than 3 of the 4 largest banks Wells Fargo (WFC), JP Morgan (JPM), and Citi (C) — and about 12% smaller than the top 4, if Bank of America (BAC)  is included.

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Apple is significantly larger that the two companies that provide the most competition for the iPhone — Google (GOOGL) and Samsung (SSNFY)aapl3

And, Apple’s market-cap is 1.8 times the combined market-cap of thee 3 top wireless phone companies on which iPhone runs in the U.S. — AT&T (T), Verizon (VZ) and Sprint (S).

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For industrial comparison, Apple is larger than EXXON (XOM), Chevron (CVX) and Conoco (COP) compined

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And they are lot larger than most of the auto manufacturing industry: Toyota (TMC), Daimler (DAIY), Ford (F), General Motors (GM), Honda (HMC), Nissan (NSANY).

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Apple is 3.85% of the S&P 500 and has a market-cap almost as much as the next 2 (Exxon and Microsoft at 4.05%); and it is almost 18% of the S&P 500 technology sector.

Bloomberg today, said Apple is about 15% larger than the entire Spanish stock market (trading at 20.9 times earnings versus Apple trading at 16.8 times earnings).  Apple’s market-cap is about 1.8 times the market-cap of Russia’s stock market, which is up about 15% YTD (and trading at 8.7 times earnings).

When will the law of large numbers will catch up to Apple is a big question.  People have been saying they can’t keep up the growth for several years now.  Eventually, they will be right, but when?