Apple Inc. (NASDAQ: AAPL) shares have raced to fresh record highs in the new year despite geopolitical tensions threatening the broader market rally.
While maintaining a bullish stance, Needham downgraded Cupertino on Monday after the stock surpassed the research firm's price target.
The Apple Analyst
Laura Martin downgraded Apple from Strong Buy to Buy and lifted the price target from $280 to $350.
Needham's Apple Thesis
Apple is focusing on products and services that result in ecosystem lock-in, such as on add-on hardware products; add-on services; family plan pricing that makes it expensive for a single person in the family to leave its ecosystem; and iPhone trade-in pricing that encourages customers to stick with the smartphone, Martin said in the Monday downgrade note. (See her track record here.)
Apple continues to feature on Needham's conviction list list yet again in 2020 due to the following reasons:
1. The company has established relationships with 900 million of the wealthiest consumers in the world, representing 12% of the global population.
2. The transitioning to a recurring revenue business model is driving multiple expansion.
3. Apple is unconcerned by the apps that are most popular on its platform.
4. Apple serves as a gatekeeper, as developers create apps for Apple's platform first to maximize their monetization, and this makes the company well-positioned to take revenue from all apps.
5. It is a pure-play on the consumer trend toward "always-on" mobility.
6. Needham sees Apple's compensation structure as a hidden asset, with the company focusing on changing the world rather than employee wealth accumulation.
7. Apple will benefit from Network Effects and has five of the 13 types of Network Effects, including the distinction of being No. 1 in hard-ware based direct network effects.
Investment risks for Apple's new iPhone releases are lower due to an installed base of iPhone super fans who remain loyal to the brand and lap up the new offerings, according to Needham.
Apple shares were trading down 0.97% at $294.55 before the open Monday.
Photo by Daniel Lu via Wikimedia.