Barclays believes the smartphone maker can overcome buyer sticker shock by including one-year subscriptions to popular Apple services such as Music and iCloud storage with the more expensive iPhones.
The firm’s survey found that iPhone consumer “buying intention” falls to 18 percent from 36 percent when the price of the device rises to $1,000+ from $800.
By including one-year subscriptions, however, Barclays analyst Mark Moskowitz says Apple could sell 64 million iPhone 8 devices next year, up from his current estimate of 40 million. He also estimates incremental profit of $1.3 billion from the move.
“Considering consumers’ sensitivity to the price gap, we explore how Apple could offer purchasers of iPhone 8 a free subscription bundle of 1-year of Apple Music and 1-year of 200GB iCloud storage,” Moskowitz wrote in a note to clients Thursday.
He says offering the subscriptions with the sale of the phone could boost revenue and ultimately boost Apple’s earnings per share.
Apple shares are up more than 41 percent this year and hit another record high earlier in the trading day on Thursday. They are up 0.3 percent in mid-morning trading at $163.99.
Fears that consumers would balk at a $1,000 or higher price tag may be overblown, however. Apple hasn’t had difficulty selling higher priced models with more storage capacity in the past. In addition, industry analysts expect Apple also will introduce two lower priced iPhone models later this year, giving consumers options.
Still, adding Apple services may be a way to lure buyers to the higher-end offering. Moskowitz estimates the free one-year subscriptions of Music and iCloud, worth $120 and $36, will cost Apple $43 and $7 to service.
“Such a move could make a $1,000+ iPhone 8 seem more within reach, with the $156 in services serving as a quasi-discount or rebate,” he said. More revenue could come if iPhone owners decide the renew the subscriptions after one year, he added.
Moskowitz reiterated his equal weight rating for Apple shares and $146 price target, which is 11 percent lower than Wednesday’s closing price.