Leave it to iconic investor Carl Icahn to hype up Apple’s stock. After all, Carl Icahn is a big investor in Apple (NASDAQ:AAPL). He is saying that the company may be worth more than $1 trillion in the future. A lot of market analysts rolled their eyes and shook their heads in disbelief with this statement but there might be a lot of more to Icahn’s pronouncement than simple hype.
The conventional wisdom regarding Apple’s valuation strategy is that it is going to boost its earnings primarily through breakaway product successes like the iPhone and new iPhone-like devices that would provide hefty revenue streams and justify a $1 trillion market valuation. I have serious doubts about this approach.
For example, let’s take the Apple Watch. Even if that wearable wireless technology initiative pans out, initial market estimates show that Apple’s earnings are not going to be impacted all that much. In the best-case scenario, that’s going to add 10% to Apple’s very hefty annual revenue stream. This raises a red flag because this highlights how dependent Apple is on the iPhone. That fact is not going to go away anytime soon.
If we are to follow this new product line strategy for reaching a $1 trillion valuation, Apple really hasn’t hit the ball out of the park with a new product that would revolutionize an industry that is worth billions upon billions of dollars every single year. It is no surprise then that a lot of people are excited about Apple’s automotive initiative. I think that’s pie in the sky talk. The real avenue for Apple to get really substantial revenues to justify a $1 trillion market valuation is Apple Pay.
Payment processing is crucial. Whenever you buy stuff online or dealing with other people, you need to move money and receive money. The way the current system is set up, there are just too many hurdles. If you are able to use your mobile phone to conveniently and cheaply transact with other people in real life, offline merchants as well as online merchants, this can lead to an explosion of commercial transactions.
Even if Apple’s cut is very small, the resulting explosion in payment activity can lead to a very hefty revenue stream. For people looking for an Apple strategy to reaching a larger market valuation, Apple Pay might be the trend they should pay attention to.