Smartphone Weekly Notes: Apple Pay Alliances, BlackBerry Classic and Samsung’s Mobile Payment Plans

The mobile industry had an interesting week. Apple (NASDAQ:AAPL) indicated that several more banks would support its mobile payment service, Apple Pay, while BlackBerry (NASDAQ:BBRY)  launched its latest mid-range handset, the BlackBerry Classic. In other news, Samsung (PINK:SSNLF) is reported to be in talks to launch a mobile payment service.

Apple Forges More Alliances For Apple Pay

Earlier this week, Apple said that 10 more banks will support Apple Pay, its mobile payment service. With the addition of the banks- which include Associated Bank, BB&T, Black Hills and WesBanco – Apple Pay now supports cards that account for 90% of credit card transactions in the United States. While Apple’s progress in getting financial institutions of various sizes on board is impressive, we believe that the long-term success of Apple Pay will hinge on building a broad base of vendors who accept the service. When Apple Pay was launched in October, Apple noted that it had a base of about 220,000 retail locations including merchants Macy’s, McDonald’s and Whole Foods. However, this number represented less than 2.5% of all merchants who accept credit cards in the United States. ^[1] While this number is likely to have grown slightly, with retailers such as Staples, Winn-Dixie and Albertsons recently adding support for the service, Apple still has a very long way to go before Apple Pay can become a true credit card replacement.  Apple is also likely to face pressure from a rival payment service called CurrentC which is backed by the Merchant Customer Exchange (MCX), a consortium of over 50 retailers that includes retail behemoths Wal-Mart, Target and Best Buy.

• We have a $120 price estimate for Apple, which translates to a market cap of close to $700 billion. Our price estimate is about 7% ahead of the current market price. We are modeling iPhone shipments of around 176 million units for CY 2014, with the number rising to over 190 million units during CY 2015. We estimate the company’s CY 2014 revenues to come in at around $186 billion. Our FY 2015 EPS estimate of $7.99 compares to a consensus of $7.76 according to Reuters.
• Apple stock rose 3.3% through Thursday.

BlackBerry Woos Loyalists and Corporates With The Classic

BlackBerry (NASDAQ:BBRY) launched its latest handset, the BlackBerry Classic, on December 17. The company is returning to its roots with the device, which is targeted squarely at BlackBerry loyalists and enterprise customers. The Classic, which will sell for $449 unlocked, features the traditional BlackBerry form factor – with a physical QWERTY keyboard and traditional navigation keys. The Classic will run BlackBerry 10 software and will also support Android apps from the Amazon App Store. The onus of BlackBerry’s recovery and long term growth falls heavily on the handset division, given that one of the company’s most profitable businesses – BlackBerry services – is seeing huge declines on the back of subscriber attrition, while the software business remains relatively small despite its strong potential. The success of the Classic and the recently launched Passport will prove crucial to BlackBerry’s turnaround. However, we believe that the company could face an uphill task in reviving its smartphone business. BlackBerry has been reduced to a fringe player in the smartphone market, with its global smartphone market share standing at a mere 0.5% (in terms of operating systems). ^[2] The fact that U.S. carriers Verizon (NYSE:VZ) and AT&T (NYSE:T) are offering the Classic only after the new year is also an indicator of BlackBerry’s diminished clout in the smartphone marketplace.

• Trefis has a $9.00 price estimate for BlackBerry, which translates to a market cap of around $4.7 billion. Our price estimate represents a 1o% downside to the current market price. We estimate the company’s FY 2015 loss per share at around $0.62 which compares to a consensus loss range of between $0.12 to $0.77 according to Reuters. We are forecasting the company’s CY 2014 revenues at around $4.22 billion.
• BlackBerry’s stock saw some volatility earlier in the week, in anticipation of its earnings release. However, the stock ended relatively flat on Thursday.

Samsung In Talks to Launch A Mobile Payment Service

Samsung, the world’s largest smartphone manufacturer, could unveil a mobile payments system in 2015, according to multiple sources. ^[3] The company has been discussing a deal with a payment start-up that would allow users of certain Samsung smartphones make payments in a majority of brick-and-mortar retailers using their smartphone. Samsung’s latest Galaxy smartphones incorporate fingerprint identification technology, and this is likely to be used in the new payments system, according to sources. While mobile payments may seem to be an odd fit for Samsung – given its hardware-focused business model and its lack of a solid software ecosystem – the mobile payments space has seen a lot buzz of lately and it does provide room for growth. According to BI intelligence, mobile in-store payments in the U.S. are set to rise from around $2 billion in 2013 to around $189 billion by 2018, translating to a CAGR of about 148%. ^[4]

• Trefis has an $1,170 price estimate for Samsung, which implies a market cap of around $172 billion. Our price estimate is slightly ahead of the current market price.
• Samsung’s stock remained flat at around $1100 through Thursday on the OTC markets in the U.S.

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More Trefis Research

1. Apple Pay Is Here — and There’s Just One Big Problem, Time, September 2014 [↩]
2. Smartphone OS Market Share, Q3 2014, IDC [↩]
3. Samsung in Talks to Launch Apple Pay Competitor, ReCode, December 2014 [↩]
4. THE FUTURE OF PAYMENTS: 2014 [SLIDE DECK], Business Insider, September 2014 [↩]