Apple's new financial product strengthens its ecosystem — and our investment case

Published Mon, Apr 17 20233:18 PM EDTUpdated Mon, Apr 17 20233:35 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Apple 's (AAPL) latest banking offering — a savings account with a 4.15% annual percentage yield — bolsters the Club's own-it, don't-trade-it mantra. It demonstrates the iPhone maker's ability to steadily roll out new services that expand its product ecosystem, while strengthening customer loyalty. Apple's high-yield savings account is available Monday for users of its Goldman Sachs (GS)-backed credit card. There are no minimum deposit or balance requirements and cash-back rewards generated from Apple Card purchases will automatically be deposited into the savings account, which is also operated in partnership with Goldman. Apple noted the savings account's 4.15% annual interest rate is more than 10-times the national average, citing data compiled by the Federal Deposit Insurance Corporation, as of March 20. The savings account launches three weeks after Apple rolled out its buy now, pay later service , which allows users to pay for purchases in four installments over a six-week period. AAPL 1Y mountain Apple (AAPL) one-year performance. The savings account is unlikely to have a material impact on Apple's profit-and-loss statement — but that's not its fundamental purpose. Like Apple's other financial services — including Apple Pay — the savings account is largely about boosting the long-term attractiveness of owning an iPhone, the crown jewel of its hardware lineup. "We view Apple's payments and financing offerings as principally being ecosystem enhancing, and relatively immaterial in the context of Apple's overall finances," Bernstein analyst Toni Sacconaghi wrote in a note to clients after Apple launched its buy now, pay later service. Bernstein estimates that despite Apple Pay's prominence in everyday life, it generates only $450 million to $700 million in annual revenue for the company — less than 0.2% of total sales. But as users further integrate their personal finances into Apple products, they become more likely to buy another iPhone when it comes time to upgrade their devices. And Apple's base of active devices is an essential part of its increasingly important services revenue stream, which includes money generated by the App Store and Apple Music. The larger that base of active devices, which stood at more than 2 billion in February , the more people who will pay for additional Apple services. While hardware and services work in concert for Apple, investors really focus on the growth of services, which are higher margin and more predictable than lumpy device sales. As a result, investors are willing to pay up for services revenue, which in practice translates into a higher price-to-earnings multiple (P/E) on Apple's stock. Services were nearly 20% of Apple's total revenue in its most-recent fiscal year, which concluded in September. That's up from about 14% in its fiscal 2018. Apple's forward P/E has steadily increased over that time period — trading today at more than 20-times forward earnings, compared with 16-times in September 2018. The Club has a 1 rating on Apple shares, our buy-it-here designation, and we continue to see it as a stock to own for many years to come. (Jim Cramer's Charitable Trust is long AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Customers shop at an Apple store on November 28, 2022 in Chicago, Illinois.

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