EFTA01017345.pdf

From: Richard Kahn To: Jeffrey Epstein <jeevacation@gmail.com> Subject: Fwd: Apple, Inc.: AlphaWise Survey Signals Long Runway for Apple Services Growth Date: Wed, 07 Nov 2018 23:12:05 +0000 Richard Kahn egm orwar e message: From: "Morgan Stanley" Date: November 7, 2018 at 6:09:00 PM EST To: Subject: Ap le Inc.: AI haWise Surve Si nals Lon Runway for Apple Services Growth Reply-To: Morgan Stanley a Wealth Management Apple, Inc.: AlphaWise Survey Signals Long Runway for Apple Services Growth Download Report Katy L. Huberty, CFA— Morgan Stanley EFTA01017345  November 7, 2018 11:00 PM GMT AlphaWise survey of US and China smartphone users increases confidence in sustained 20%+ annual Services growth and margin expansion as Services takes the growth baton from iPhone. Our analysis adds $27 incremental value tied to Services in our SOTP-driven PT of $253. Remain OW. We think the market underestimates both growth and value impact of Apples Services business. With a maturing, more engaged iOS user base and broadening portfolio of Services, we believe Services represents the key growth driver for Apple over the next 5 years (1). Supported by Services penetration at a key inflection point and our AlphaWise survey signaling spending increases over the next year, we are confident Apple can sustain 20%+ annual growth over the next five years. The market isn't pricing this in with consensus predicting Services growth rate slows to the mid teens by FY20 and our Services forecast 11% above consensus over the next four years (2). While the market read announced changes to Apple financial disclosures negatively last week, we view it as a corroborating data point that Apple is approaching a services-led margin inflection, similar to when Amazon began breaking out AWS revenue and profits in 1O15 (3).Overall Services and specifically iCloud & AppleCare are approaching key 20% inflection point; a level of penetration historically associated in technology with higher growth velocity (4 & 5). App Store, the service with highest penetration today, experienced a growth acceleration when penetration topped 20% and we expect other services to follow the same path (6). AlphaWise survey supports 21% Services 5-year CAGR. With little publicly available data, transparency into Apple Services metrics is low but partnering with AlphaWise provides survey driven metrics to better understand penetration and spending intentions. These bullish survey results (7) form the basis for our new penetration and spend per user forecasts for each of Apples Services segments. We now forecast This alert is sent from: Andrew Atlas. You received this because you requested that you receive content and reports from: APPLE INC. Please contact your FA if you want to unsubsaibe from the alerts. Disclosures: Please see the full report for risks, disclosures and other important information. Important disclosures regarding the relationship between the companies that are referenced in Morgan Stanley research and Morgan Stanley Wealth Management research are available on the Morgan Stanley Wealth Management disclosure website at Morgan Stanley Wealth Management Not Acting as Municipal Advisor Morgan Stanley Wealth Management is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 15B of the Securities Exchange Act (the "Municipal Advisor Rule") and the j opinions or views contained herein are not intended to be. and do not constitute, advice within the meaning of — the Municipal Advisor Rule. Copyright The copyright in materials provided by Morgan Stanley is owned by Morgan Stanley & Co. LLC. Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States. O2018 Morgan Stanley Smith Barney LLC. Member SIPC. EFTA01017346