If Apple Wants To Stay Levered To The iPhone – Here’s An Idea

AAPL Should Tighten its Grip on Mobile

AAPL has clearly carved out its niche in the mobile smartphone market, which gives it a huge advantage in the emerging mobile payment business. According to some estimates, US mobile payments volume will sky-rocket at a CAGR of 172% over the next 5 years, reaching $818 billion by 2019 or 15% of total US payment volume. AAPL recently added the Discover card to its mobile payments service, which already includes VISA (V), MasterCard (MA), and American Express (AXP). According to company CEO Tim Cook, Apple Pay will be accepted at 1.5 million US locations by the end of the year.

With Google Inc (NASDAQ:GOOG) ramping up its mobile payment efforts, now would be the ideal time to for AAPL to set its sights on major acquisitions that can extend its leadership pace in this growing market. Instead of re-engineering the mobile payments market and starting from the ground up, AAPL should consider acquiring a company like Square, the San Francisco-based merchant services provider that draws influence from Steve Jobs’ design philosophy. Square already has a $6 billion valuation after just five years in operation and has been praised by Business Insider for its elegant, easy to use product.

Revel Systems is another mobile payment provider that would make a solid pickup by AAPL. Revel, which develops iPad point-of-sales solutions, recently received a valuation of $500 million from Roth Capital Partners. Revel’s POS systems are already deployed in thousands of US locations and can make a great catalyst for iPad sales, which declined 23% in AAPL’s latest quarter.

Takeaway

AAPL needs to make a big acquisition to bring life back to its stock and to secure the eminence of the iPhone if it remains majorly levered to that product – whether it likes it or not. Beats just didn’t cut it. People certainly won’t stop shopping and paying for things – so an acquisition of Square, Revel, or another company that beefs up the capabilities and functions of the iPhone and adds value to its other products will put investors’ worries at ease that AAPL is a one-product company. AAPL has prided itself on self-innovation, but it needs to make a big splash soon to not only breathe life back into its lagging stock but also solidify the iPhone’s dominant position for the next few years. If it comes up with another product that comes to rival the iPhone in sales or catch fire with consumers – well – that would be great – but investing on that premise is based on hope. In the meantime, investors need to be reassured that the iPhone’s success will not wane in the ever-changing technology industry. So wouldn’t it be ironic if AAPL was seen as thinking outside the box – by buying “Square?”

Disclosure: The author has no position in AAPL or other securities mentioned in the article.