UBS analyst Maynard Um increased his 12-month price target for AAPL shares to $510, up from $495, based mainly on the potential of Apple as yet unreleased iCloud service. Um believes that the services will include easy and “seamless” music streaming.
He also suggests that the iCloud services will improve the overall Apple experience to a great degree, and significantly increase the usefulness of the services already available (MobileMe), as well as drive more customers to purchase Macs, iPads, and iPhones.
Um wrote: In our view, consistency of features, user interface and functionality across the Mac and mobile OS will likely accelerate the ‘halo effect’ driving more Mac sales…We believe the majority of value created from such a service would be in the continued improvement of the Apple ecosystem value proposition rather than driving material profits by itself. Apple has consistently stated that it does not make large profits from selling content on its iTunes platform and generally runs the business at or just above break even. Apple wants to sell hardware at high margins, and the company has been successful at doing so over the last decade in part because of the high value proposition it offers consumers with services like iTunes. Significant enhancements to that ecosystem spur the sale of more hardware to consumers.”
Um even developed an interesting chart (below) that illustrates and clarifies his point (click to expand into a larger version).
Other tidbits from the research note include the suggestion that Apple offer application hosting to its developers as a way of further developing its ecosystem. He believes that Apple could have such a plan in mind for the massive data center the company is building in North Carolina.
Mr. Um maintained his “Buy” rating on AAPL.
