Analyst: Macs Are Strong, Subscriptions On the Way

by , 11:20 AM EDT, April 26th, 2007

American Technology Research analyst Shaw Wu called the Mac's second quarter performance "surprisingly strong," and felt the numbers would have been even better if users weren't waiting for Mac OS X 10.5. Mac sales for the quarter came in at 1.52 million units, well above the 1.45 million expected, and 36 percent higher than the same quarter last year.

Another surprise from Apple's second quarter earnings report was that the company will be using a subscription accounting model for iPhone and Apple TV sales.

"We believe Apple is in the midst of building a more serious effort in the subscription business where it could enter the 'rental' space with video games and music, TV, and movie content," Mr. Wu said. "We would not be surprised to see Apple compete with the likes of Netflix and Blockbuster in a bigger way."

Mr. Wu's comments echo the observations of Ben Reitzes from USB. He said "The policy also shows Apple's intentions to begin to offer an exciting new content subscription service for iTunes for Apple TV and the iPhone."

Based on Apple's move to use subscription accounting for the iPhone and Apple TV, Mr. Wu thinks that earnings per share may no longer be the best tool for measuring the value of Apple's shares. Instead, cash flow from operations may be more appropriate since it is better suited for following the high-growth areas that Apple's new products fall into.

Mr. Wu is maintaining his "Buy" rating and target price of US$145 for Apple stock. Fiscal 2007 estimates are now $23.3 billion and $3.45, up from $23.3 billion and $3.12. He is modeling $30 billion and $4.15 for fiscal 2008.

Apple is currently trading at $99.99, up 4.64 (4.87%).

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