Update: Apple - At Least 6% Upside From The Mobile Payment Opportunity, Potentially Much More

Sep. 2.14 | About: Apple Inc. (AAPL)


Bloomberg reports that the iPhone 6 will feature a payment platform powered by the NFC technology.

This is perfectly in line with our scenario and gives confidence in Apple’s ability to monetize mobile transactions.

Close to 73% of mobile transactions took place on an iOS device late last year (vs. 27% on Android devices)!

Investors’ first reaction could be to value Apple’s initiative at least in line with PayPal, hinting at a 6% immediate upside. But mid-term upside could be much more significant.

Bloomberg reported yesterday that Apple (NASDAQ:AAPL) would turn the iPhone 6 (to be unveiled on September 9) into a mobile wallet through a partnership with major payment networks, banks and retailers and that this mobile payment platform would be powered by a NFC (near-field communication) chip.

In our March article "Apple: Mobile Payments, A $40-60bn Opportunity", we explained that Apple had no choice but to ship a NFC-enabled iPhone 6, notably if it did not want to be sidelined from the Chinese market where NFC is becoming a smartphone standard. We added that NFC would probably be instrumental in the success of Apple's payment platform as merchants around the world have started to adopt the technology and as point-of-sale terminal vendors are shipping NFC-enabled devices. Many readers were skeptical about our analysis as illustrated by the following comments, "NFC is not secure", "Apple has a choice. Apple has already chosen iBeacon and related Bluetooth 4.x communications". But it looks like we were right.

The revenue and earnings opportunity is huge for Apple. According to research firm Adyen, the share of payment transactions taking place on a smartphone or tablet grew to 19.5% in December 2013 from 12.6% in December 2012. And close to 73% of these mobile transactions took place on an iOS device (vs. 27% on Android devices)! Therefore, Apple has an incredible opportunity to monetize the mobile commerce business. The ramp-up of a mobile payment processing service will obviously take a few years, but Apple has everything it needs to succeed: 800m iTunes accounts, loyal and high-income customers, technology know-how and a strong brand. We believe that investors' first reaction could be to assume that Apple will catch up with PayPal pretty soon and hence to value Apple's mobile payment initiative at least in line with PayPal. As PayPal is worth around $40bn, the Apple stock price could get a 6% boost. But there is obvious upside on this figure in our view, as Apple has a much larger (and high-end) user base: 800m users vs. 152m PayPal users.

Disclosure: The author is long AAPL.

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