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AAPL Stock Could Reach $500, Apple Expands App Store, Music, iCloud to New Markets

The most significant driver for a massive boom in Apple Inc (NASDAQ: AAPL) stock might be what does not excite investors. Amit Daryanani, an analyst with Evercore ISI recently, unpacked his $500 upside case for Apple (AAPL) stock price and explained what could be the significant catalyst: margin expansion.

In Daryanani’s analysis, his most bullish case shows that the firm can improve gross margins for its product segment to 34% where the company’s stock stood in the 2018 fiscal year. Contrary to that, his base case models product gross margins of 32%, flat relative to the 2019 fiscal year.

Reportedly, the prospect of expanding gross margins is visible. It would happen when the App Store and App music starts contributing the most to Apple’s overall business.

Services gross margins stood at 64% last fiscal year as Daryanani sees them staying mostly flat. However, service performance will help lift margins for the business as a whole. This is because the segment’s revenue grows faster than hardware sales in the coming years.

“We expect wearables and services to sustain double-digit growth driven by an uptick in [average revenue per user] and better monetization of the install base,” wrote Daryanani. Moreover, he called “non-iPhone growth” as a catalyst.

He also sees a way Apple could improve its operating leverage. While Evercore’s base case calls for operating-expense growth that outpaces sales growth, the upside case assumes Apple “can get some leverage out of the model.”

However, Evercore’s most upbeat case calls for multiple serial expansion. He said it would take place in tandem with “consumer/luxury goods peers.”

Evercore’s $500 upside case could be compared to a $325 base case and a $200 down case. The base case assumes that Apple doesn’t capture much operating leverage. However, it can lean on its large net-case position to conduct share buybacks. This will help propel growth in earnings per share.

In line with Daryanani’s analysis, other reports have it that Apple is expanding its services like App Store, Apple Podcast, iCloud, Apple music to the additional markets in Africa, Europe, Asia Pacific, among others.

It is said to be one of the most significant geographical expansions for one of the world’s biggest firms. The App Store, Apple Arcade, Apple Podcasts, and iCloud are currently available in 20 additional nations. However, the iPhone maker’s music streaming service, Apple Music, has launched in an additional 52 countries.

The new expansion, as reported, has not been effective in the firm’s stock. Apple (AAPL) stock as at press time trades at $269.21 plunging 2.79%. The stock closed at $276.93 yesterday and opened today at $276.28.

AAPL Stock Could Reach $500, Apple Expands App Store, Music, iCloud to New Markets

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