Remember those Apple Inc. (NASDAQ:AAPL) stock bears at the beginning of this year? They are eating their words now. In the past three months, Apple stock climbed a solid 12%. But it shouldn’t really come as a surprise. After all, value cannot go unnoticed forever.
Today, let’s take a look at one of the company’s services that doesn’t always get the attention it deserves—“Apple Pay.”
This Could Be Huge for AAPL Stock
Apple Pay marks the tech giant’s foray into the mobile payment industry. The service was first launched on October 20, 2014 in the U.S. and has since expanded to the U.K., Canada, Australia, and China. Apple Pay works with cards issued by Visa Inc (NYSE:V), Mastercard Inc (NYSE:MA), and American Express Company (NYSE:AXP).
One year after Apple first launched the service, it was reported that Apple Pay was being used by 14% of households with eligible credit cards. (Source: “Study: Apple Pay Has More Gen X Users than Millennials, But Adoption Slowing,” AppleInsider, October 26, 2015.)
The mobile payment industry is expected to get a huge boost in the next few years. According to Statista, worldwide mobile payment volume was $450.0 billion last year. That number is expected to grow to $620.0 billion this year and reach $1.1 trillion in 2019. (Source: “Global Mobile Payment Transaction Volume from 2015 to 2019,” Statista, last accessed April 7, 2016.)
Now, Apple Pay is benefiting from the company’s huge fan base in another country—China.
It’s no secret that China has been a huge market for Apple. Revenue from Greater China reached $18.4 billion in the most recent fiscal quarter, which was more than Europe and only behind the Americas. (Source: “Q1 2016 Unaudited Summary Data,” Apple Inc, January 26, 2016.)
The company launched Apple Pay in China this February, and the reception has been nothing less than phenomenal. In just two days, three million cards were activated on Apple Pay. (Source: “Apple Pay Gets off to a Fast Start in China,” Internet Retailer, March 1, 2016.)
Jennifer Bailey, vice president of Apple Pay, commended the service’s debut in China: “I would rate our first-day performance as 1,000, if the full score is 100.”
Of course, for a payment service to prosper, there needs to be enough venues to support it. On that front, Apple Pay is off to a good start in China. Many retail chains, restaurants, and online retailers in the country have started accepting Apple Pay, including Starbucks, McDonald’s, KFC, and French department store chain Carrefour.
To give consumers more incentives to use the payment service, a lot of vendors have promotions for Apple Pay users. For instance, if you spend over 60 yuan (US$10.00) at Starbucks, you can get a 15-yuan (US$2.30) discount by using Apple Pay.
E-commerce in China could be another growth engine for Apple Pay. On the first day of launch, consumers used the service most on the country’s largest group buying site, Meituan.com. Apple said that Apple Pay might be able to double the conversion rate for e-commerce apps.
Despite its growth, the service still has a lot of potential in the most populous country in the world. There are 19 Chinese banks offering Apple Pay. Together, these banks represent approximately 80% of cardholders in China.
The Bottom Line on AAPL Stock
At the end of the day, the “iPhone” remains Apple’s core business at the moment. And concerns on how much iPhone sales will grow could continue to be a drag on AAPL stock. But don’t forget that Apple is expanding its business well beyond hardware devices. When segments like Apple Pay pick up more momentum, Apple stock won’t be this cheap.