Apple’s BNPL Strategy

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 business model 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 switching costs 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
2)Customer churn
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.