Goldman Sachs' analyst Bill Shope values Apple's iPhone and iPad customer base at $295 billion based on the results of a two part study.
Shope began by calculating the cost of switching from iOS to a competing platform and then he conducted a survey of 1,000 iPhone and iPad customers to find out how much of a discount a competitor would have to offer them to switch.
FORTUNE outlines the key takeaways:
● iOS users are a loyal bunch. 94% are likely or highly likely to stick with Apple for their next smartphone or tablet. More than one in five said there isn't a discount high enough to persuade them to switch.
● It costs a lot to switch. The explicit switching cost (to replace music, apps, etc.) comes to an average of $122 to $301 per device. The implicit switching costs (the "pain in the neck factor," losing Apple's better-than-average customer service, etc.) make the platform even stickier.
● Installed base matters. Shope estimates that by Saturday (when Apple's third fiscal quarter ends), the installed base of iOS units will exceed 281 million, up 72% from the same quarter last year. Using a blended average selling price reduced by Apple's gross margin, platform erosion etc., he calculates that the lifetime value to Apple of each iOS customer is $1,053.
● Apple's greatest value is its customer base. Multiplying 281 million by $1,053, Shope gets a value for Apple's installed base of roughly $295 billion. That's about 55% of Apple's current market capitalization. And that, he adds, "is before taking into consideration Apple's $110 billion cash balance, the rapid growth of the installed base, the value of the Macintosh and traditional iPod businesses, and the related content, services and peripherals streams."
Goldman Sachs has a 12-month target on Apple of $850.