For investors of Apple Inc, the most exciting product the company could release this fall isn’t a new version of the iPhone or Apple Watch: It’s a bundle that tie some of the company’s subscription services together and give users with a discount for subscribing to more than one at the same time.
Apple hasn’t confirmed “Apple One,” the suggested name for the bundle, but technology blog 9to5Google found code in the Apple Music Android app earlier this week suggesting that the iPhone maker will tie its music service to other subscriptions it offers, like Apple TV+, Apple Arcade, and iCloud storage.
If Apple One launches this fall, Wall Street investors and analysts will be happy. An Apple bundle has been on investor wish lists for years. “We have long argued that bundling services is a unique tool that Apple has at its disposal,” Goldman Sachs analyst Katy Huberty wrote in an August note.
The theory is that an Apple bundle will anchor Apple’s burgeoning services business, increase the number of subscribers, and complete the perspective shift from Apple as a hardware maker dependent on annual iPhone refreshes, to a technology and software company with several lines of recurring revenue and a self-reinforcing ecosystem, potentially driving the stock price up without having to increase product sales or prices dramatically.
Huberty wrote that an Apple bundle could differentiate Apple’s services, boost subscribers for Apple’s less popular services, integrate with Apple Pay and Apple Card, and lock customers into the Apple ecosystem. Apple has set a target for 600 million subscribers by the end of 2020 (including subscribers to App Store apps), Huberty writes, and a bundle would help it hit and exceed that target.
To some extent, Apple has already started changing its story with investors. They currently give the company a much richer valuation than they did in 2015, when activist investor Carl Ichan wrote an open letter to Apple CEO Tim Cook raising the idea that Apple’s ecosystem was undervalued.
On Thursday’s close, Apple has a P/E ratio close to 34.5, according to FactSet, compared to 10.9 when Icahn wrote his letter. That’s been largely driven by Apple’s online services, which accounted for 22% of the company’s revenue in the quarter ending in June.
Icahn, who sold his Apple stake in 2016, suggested that Apple could increase its P/E ratio by aggressively expanding into the TV market, and that a core part of that strategy would be a “skinny bundle” of pay-tv shows and movies from media companies alongside a streaming music service.
The “skinny bundle” never came to fruition, nor did the Apple-made physical TV that Icahn predicted. But in recent years, Apple has made some moves toward that vision. Last November, Apple released Apple TV+, a $4.99-per-month subscription that gives users access to Apple-funded TV shows, movies and documentaries.
And inside the Apple TV app, users can subscribe to CBS All Access and Showtime, two streaming channels, for $9.99 per month, a savings of $11 per month over buying the two services separately. But the idea of the Apple bundle and significant recurring revenue had took hold among people who felt at the time that Apple was undervalued.
Goldman Sachs analyst Simona Jankowski floated in 2016 that if Apple were to own its own content, it could bundle that with Apple Music and hardware like an Apple TV set-top box and iPhone for $50 per month. Bernstein analysts said around the same time that there was a case for Apple buying Netflix to create a bundle to combat Amazon Prime.