- July 28, 2022
- Posted by: Ramkumar
- Category: Posts
Apple’s BNPL Strategy
Apple has joined the #bnpl – Buy now pay later industry with its new service Apple #paylater. This move will change my view on Apple’s future #valuations more than any other iPhone/mac launch, as it is a drastic move by Apple to lock in its customers in its ecosystem through its brand and loyalty initiatives.
IN MY VIEW, the BNPL #businessmodel is terrible for consumers’ financial health because it encourages immediate gratification and puts younger people on a consumption treadmill. However, it has the potential to boost Apple’s bottom line. With this move, 𝐀𝐩𝐩𝐥𝐞’𝐬 𝐞𝐜𝐨𝐬𝐲𝐬𝐭𝐞𝐦 𝐰𝐢𝐥𝐥 𝐟𝐮𝐫𝐭𝐡𝐞𝐫 𝐬𝐭𝐫𝐞𝐧𝐠𝐭𝐡𝐞𝐧, helping the company take a small amount of value from the ecosystem, creating substantial #switchingcosts for its users.
𝐒𝐨, 𝐭𝐡𝐞 𝐪𝐮𝐞𝐬𝐭𝐢𝐨𝐧 𝐢𝐬, 𝐡𝐨𝐰 𝐰𝐨𝐮𝐥𝐝 𝐢 𝐯𝐚𝐥𝐮𝐞 𝐀𝐩𝐩𝐥𝐞 𝐠𝐨𝐢𝐧𝐠 𝐟𝐨𝐫𝐰𝐚𝐫𝐝?
In my view, i would value Apple from the bottom up by analysing the economics of its customer relationships.
𝐕𝐚𝐥𝐮𝐞 𝐨𝐟 𝐜𝐮𝐬𝐭𝐨𝐦𝐞𝐫 = 𝐏𝐕 (𝐂𝐚𝐬𝐡 𝐟𝐥𝐨𝐰𝐬 𝐟𝐫𝐨𝐦 𝐜𝐮𝐬𝐭𝐨𝐦𝐞𝐫𝐬) – 𝐂𝐮𝐬𝐭𝐨𝐦𝐞𝐫 𝐚𝐜𝐪𝐮𝐢𝐬𝐢𝐭𝐢𝐨𝐧 𝐜𝐨𝐬𝐭
When i use this approach, i can 𝐟𝐨𝐫𝐞𝐜𝐚𝐬𝐭 𝐬𝐚𝐥𝐞𝐬 𝐠𝐫𝐨𝐰𝐭𝐡 𝐛𝐞𝐭𝐭𝐞𝐫 𝐭𝐡𝐚𝐧 𝐭𝐡𝐞 𝐭𝐨𝐩-𝐝𝐨𝐰𝐧 𝐚𝐩𝐩𝐫𝐨𝐚𝐜𝐡. As Sales growth is the most critical driver for valuation, i can value Apple better.
The other value drivers are:
1)Rate of new customer additions
3)Frequency of purchases
4)The volume of purchase per transaction
From the above, I can determine what key customer metrics influence Apple’s current share price and whether the current price justifies the expected growth potential. Thus, a big part of Apple’s potential value gets linked to the BNPL industry and its strategic position of seizing possible market share from the incumbents.
Whenever a company changes its business model or enters a new industry, there are potential changes in its operating value drivers. Thus, one must make informed judgments about its impact on existing stock prices.