With consumer spending slowing down, a hardware subscription service for Apple (AAPL 0.52%) could be lucrative in the long term. In this Motley Fool Live segment from "Ask Us Anything," recorded on April 12, Fool.com contributors Demitri Kalogeropoulos and Jose Najarro consider how this move could result in an even higher valuation for Apple.
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Demitri Kalogeropoulos: One thing on Apple I thought that was interesting was recently, Apple has been rumored to be getting into this hardware subscription model. I know CEO Tim Cook has been talking a lot about their pivot to subscriptions and how their software services are so important. The idea, I think, it seems that the way they're trying to pivot the business is the iPhone is selling great every year, their hardware, they're max, they're refreshing their really pro computers and the new chips that they're making, all their hardware is just great and they can command quite a premium, but I think they're really trying to push into that recurring revenue model in the software side, the Apple TV and the fitness stuff and those products. They're really excited about that and how that's growing part of the portion of the business and how that can really expand the valuation of this company, because if it's a hardware maker, it's valued at a certain level because hardware is not a really big, high-margin recurring business and it goes down a lot when consumer spending goes down.
But if you can get into the subscription world, then all of a sudden you're looking at a much higher valuation and the business is much more steady and things like that. I guess the idea is that Apple could be getting into a subscription service for their iPhones and for some of their other products, which could definitely boost the stock. What do you guys think in terms of that strategy and whether or not Apple can do it?
Jose Najarro: If there was one player that I think could do the hardware subscription service, I definitely think it would be this company. I want say luckily for me, I'm still not an Apple addict. So I will be able to escape this revenue stream for that. But I can definitely see this being a strong move for the company to hey, especially during times right now where maybe consumer spending is slowing down. Maybe you don't want to spend too much money, so maybe to reduce that initial cost, I think could bode well in long term.
