Apple iCloud to be iPopular

Apple Inc. has joined the race in offering cloud computing services along with Google Inc., Amazon.com and Microsoft Corp. Apple's iCloud service are intended to be used by 76 percent of iPhone users, according to a RBC Capital Markets survey.

Survey data indicates Apple may sign up 150 million iCloud and up to 150 million iMessage users. Proprietary RBC survey data (1,500 respondents, June 7-14) shows 76 percent of iPhone users intend to use Apple’s iCloud service, unveiled at WWDC. This high response rate affirms the growing interest in storing, syncing and sharing music, photos, documents across multiple devices (e.g. Smartphones, Tablets, PCs, TVs, etc), said Mike Abramsky, an analyst at RBC Capital Markets.

Abramsky said Apple, based off the survey data, could sign up estimated 150 million iCloud users, moving into the scope of leading of online user bases (Facebook (700 million), Microsoft/Skype (700 million), Twitter (300 million), Yahoo! (300 million), and Google/Gmail (200 million)).

Abramsky said 30 percent of surveyed iPhone users are very/somewhat likely to spend $24.99 per year for iTunes Match to host their non-Apple music libraries in iCloud. (This equates to a nominal $1.5 billion per year revenue for Apple (1 percent of annual revenue) with nominal EPS impact (assumes iTunes Match gross margins are 10 percent, inline with iTunes content sales).

Abramsky said Apple may plan to launch additional services over time on iCloud. Examples may include audio and video streaming, photo and video sharing, hosted Time Machine backups, document management and storage and others. Apple is likely to build iCloud service into all iOS devices, possibly including even entry-level products like the iPod Nano and Shuffle.

Abramsky said 73 percent of iPhone users intend to use iMessage, equating to up to about 150 million iMessage users. iMessage thus has the potential to strengthen loyalty among existing iPhone users, as well as incent 60 millino-plus iPod Touch users to favour iPhone over other smartphones (e.g. Android) if they upgrade.

As it stores user data, iCloud, along with iTunes is expected to enhance loyalty and stickiness of Apple’s customers, helping defend against threats from Android, helping grow a defensible install base of users who continually upgrade to next generation Macs, iPhones, iPads, and iPods, said Abramsky.

The brokerage maintained its outperform with above average risk rating on shares of Apple, while reiterating its price target of $450.

Abramsky said impediments to his price target include: unknown market acceptance of new products, new product launch delays, stronger than expected competitive response to iPhone, slower than expected international expansion, greater than expected iPod cannibalization, slower than expected Macintosh market share gains, channel conflicts or execution, and key executives or staff departures.

We see Apple's valuation multiple as vulnerable should market sentiment continue to deteriorate and it could compress further on unexpected competitive developments, execution stumbles, unexpectedly slowing growth, declining margins, PC market concerns, or decline in overall market or technology market valuations, said Abramsky.

Apple stock rose 1.68 percent to $320.62 on the NASDAQ Stock Market at 10:16 am EDT.