Morgan Stanley’s Woodring Starts Apple Coverage with Bullish Note
22 JULY 2022 - A headline from Apple Insider: “Katy Huberty is no longer covering Apple for Morgan Stanley.” That’s apparently official this time. Toward the end of June Apple 3.0 said that “Katy Huberty has moved into a management role,” but was “still involved with Apple coverage as it [transitioned] over to Erik.” The “Erik” in question was Erik Woodring - the guy taking over Cupertino coverage. And yet, notes kept coming not from Woodring, but from Huberty.
Yeah - we’re apparently done with that. While the piece from Apple Insider had not heard anything about Huberty moving into management, it did say:
[Morgan Stanley] sent out a note to investors on Thursday penned by analyst Erik Woodring and his team. In that note, Morgan Stanley said that "[w]ith this report, Erik Woodring is assuming coverage of Apple, Inc.”
And he didst hit the ground running. Apple 3.0 ran part of Woodring’s 31-page introductory note - and boy oh boy does he sound bullish. Quoting his note:
We believe a more pronounced shift to a subscription-like model could add roughly $1 trillion to Apple's current market capitalization. As we've long argued, Apple's industry-leading retention rates and expanding ecosystem of hardware and services has already created one of the world's most valuable technology platforms that centralizes and controls everything from traditional communication to entertainment, social media engagement, photo & video development, gaming, business, payments, travel, fitness, and more.
The problem, as he sees it, “the market continues to value Apple shares more like a traditional -- albeit best-in-class -- technology hardware platform…” Not the way to do it, in Woodring’s estimation. Quoting the note again:
We believe that as Apple's installed base matures, retention rates maintain or improve from already high levels, new market opportunities emerge, and Apple proves they can drive sustained growth in spend per customer, investors will begin to gravitate towards a more lifetime value (LTV) based valuation approach.
The way he and his team see it, while most companies try to make back five-times what they spend acquiring customers, Apple makes back 16-times its acquisition costs. That’s “well ahead of other true subscription businesses like Netflix, SiriusXM, New York Times Co, and Spotify,” according to the report.
Mr. Woodring maintains Morgan Stanley’s “Overweight” rating on Apple shares. He’s also holding onto the firm’s recently lowered Apple price target of $180.
