Monthly Archives: November 2014

Yet another billion dollar business

I tried to assess the opportunity of Apple Pay but found it to be mostly dependent on how quickly card payments will overtake cash. It seems that as payments move to a digital format they will move to a mobile device. The hurdle isn’t going from a card to a phone but from cash to card.

Data published in The Growth and Diffusion of Credit Cards in Society  shows that between 1970 and 2001 households with at least one credit card in the US grew from 17% to 70%. More recent data shows 82% of US consumers have at least one credit card and 77% have a debit card.

The Total Addressable Market for Apple Pay then is dependent on how quickly this pattern repeats over the markets where iOS devices are in widespread use. Once cards are in use they are used with higher frequency and quickly overtake cash for the user.

The only assumption that needs to be made is that the device then replaces the plastic card. This seems a safe assumption as the benefits of the device as payment authenticator are high and the costs are negligible given a penetrated market.

The following graph shows an extrapolation of transaction volumes where Visa and MasterCard and Amex are showing moderating growth with UnionPay showing 20% constant growth through 2019.1

Screen Shot 2014-11-28 at 12.58.21 PM

Two more assumptions are needed: the share of transaction value captured by Apple Pay and the Apple Pay fee. I used 15 basis points ($15/$10000) as the assumed Apple fee and a share schedule as follows: Continue reading

  1. Supporting these assumptions is a forecast from Nilsen showing total number of cards in circulation by issuer and a forecast of total transactions Screen Shot 2014-11-28 at 1.40.01 PM []

How big is iCloud?

Apple has declared that what used to be “Other Music Related Products and Services”1 plus “Software, Service and Other Sales”2 which was formerly known as “iTunes/Software/Services”3 is about to become “Services”.

“We’ll also have a category that we refer to as services and this will encompass everything we report under the heading of iTunes software and services today including content, apps, licensing and other services and beginning this month it will also include Apple Pay.”

“Services” will therefore encompass a massive amount of revenue. The reported revenues for the fiscal 2014 were $18 billion. Including all billings, the turnover in sales is over $28 billion. For next year, assuming that Apple Pay, which is just getting started, is unlikely to contribute greatly to revenues, Services turnover will top over $35 billion. That figure would make Apple Services alone one of the top 90 companies in the Fortune 500.

Screen Shot 2014-11-14 at 5.11.47 PM

Regardless, as a component of overall sales, the group formerly known as iTunes/Software/Services (shown in red above) was a modest 7% of total sales in the last quarter. Using all available information regarding downloads, payouts and reported financials, an estimate can be obtained on how this 7% is itself divisible into nine sub-segments: Continue reading

  1. Includes revenue from sales from the iTunes Store, App Store and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories. []
  2. Includes revenue from sales of Apple-branded and third-party Mac software, and services. []
  3. Includes revenue from sales on the iTunes Store, the App Store, the Mac App Store, and the iBooks Store, and revenue from sales of AppleCare, licensing and other services []

Asymcar 19: About that Ferrari SUV…

What motivates a company to destroy its brand?

We start with Mini’s plans to sell 100,000 cars in the States by 2020, nearly double today’s pace and remember how Cadillac destroyed their brand and how Mercedes, Porsche, Ferrari et. al. can’t wait to do the same.

Also, might retail power in the form of strong dealer regulation limit brand’s ability to improve or address customer experiences? What motivated Warren Buffet to enter the American car dealer business? (With a long aside on what Buffett investment logic is all about and why it’s not contradictory to a growth investor).

 

via Asymcar 19: About that Ferrari SUV… | Asymcar.