Maxim Group: Apple's Long-Term Services Business 'Not Attractive Enough' For Bullish Rating

Apple Inc. AAPL's growth story in its Services business is well-known to the investment community, but isn't "attractive enough" to warrant a bullish stance on the stock, according to Maxim Group. 

The Analyst

Analyst Nehal Chokshi downgraded Apple's stock rating from Buy to Hold with a price target lowered from $204 to $200.

The Thesis

Apple's multiple subscription, or subscription-like, services — including the App Store, Apple Pay and iCloud — at best will attract a 30-percent attach rate on average, Choshi said in the downgrade note. The estimate comes from prior survey data that found attach rates vary from as low as 10 percent for Apple News to as high as 77 percent for Safari.

Apple's decision thus far to make some of its services exclusive to the iOS ecosystem "drives away" potential users, as only an estimated 32 percent of iPhone users also use a Mac, the analyst said. This appears to be in direct contrast to Microsoft Corporation MSFT CEO Satya Nadella's detachment of Services offerings from the legacy Windows operating system, which likely resulted in users "no longer shunning" Microsoft's cloud services, Chokshi said. 

Even assuming Apple is able to grow its services business at a 22-percent compound annual growth rate, the company's overall revenue growth will likely only be 4-percent CAGR and yield an EPS CAGR of around 10 percent.

Price Action

Apple shares were down 0.47 percent at $187.01 at the time of publication Wednesday morning. 

Related Links:

Gene Munster: Service At The Core Of Apple

Bernstein's Sacconaghi Breaks Down The 'Surprising Strength' Of Apple's Services

Photo courtesy of Apple.