Analyst: Apple's 'lifetime' customers locked in and lovin' it

A new report from Bernstein Research attempts to gauge the long-term worth of Apple's "lifetime customers," those who will be back every few years to buy new versions of products.

San Francisco Apple store line-goers in the early morning on launch day Friday.
San Francisco Apple store line-goers in the early morning on launch day Friday. Josh Lowensohn/CNET

Those who buy Apple products, keep on buying them and show few signs of stopping, a new analyst report suggests.

In a research note sent out to investors today, Toni Sacconaghi of Bernstein Research makes the case that Apple's built up a product platform the likes of a cable company, with many of its customers coming back again and again to re-purchase devices like they would a paid subscription.

That may not be such a new idea given the fortune the company's made selling a new version of the the iPod, and now iPhone and iPad every year. But with that in mind, Sacconaghi argues that you can take a look at certain existing sales numbers and draw some conclusions about sales in each product category over the next two years, all based on buying habits and studies on consumer loyalty.

"One common concern is the sustainability of iPhone sales and profitability levels in light of the handset industry's competitiveness and transactional nature," Sacconaghi writes. "However, we believe that rather than being a transactional company with volatile revenues, Apple is a platform company with stable, almost annuity-like revenue streams, driven by strong user lock-in."

That so called lock-in comes in the form of Apple's platform, which includes iTunes, the App Store, iBookstore, iMessage, iCloud, and Siri. Sacconaghi suggests that because of that, about 90 percent of iPhone buyers intend to repurchase when it's time to buy a new phone. That data comes from both the firm's own study in 2010, as well as one from Strategy Analytics published last October. Sacconaghi does not provide similar data sets and surveys to back up that that's happening with Apple's iPad and Mac business, except to say that they are "similarly high."

So how does that work out for each product? The report suggests the following "lifetime value(s)" of each customer--by product--based on data about retention rates, replacement time and Apple's margins on each device type (among other data):

iPhone: $700-$900 (replaced every 2 years)
Mac: $600-$650 (replaced every 3 years)
iPad: $275-$300 (replaced every 3 years)

Based on Bernstein's projections, that works out to a "total lifetime customer value" of $204 billion in revenue for Apple in the end of its fiscal 2012, which Sacconaghi projects to reach $373 billion by the end of fiscal 2014. Throw in Apple's projected cash balance to all that, and you get $548 billion at the end of fiscal 2014, an amount the firm says falls "under conservative assumptions."

Sacconaghi notes that there are a number of risks that throw these estimates off. That includes: poor execution down the line, with existing customers jumping to rival platforms; carriers reducing how much they're subsidizing devices and extending contract lengths; and people flat out moving away from phones and computers with something completely different that Apple does not offer.

"Clearly, if a new technology emerged that challenged or superseded the smartphone (like wireless did to wireline; or arguably satellite did to cable), lifetime values of Apple's customers would be undermined," Sacconaghi said.

 

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