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Apple Could Bundle Free iCloud, Apple Music With iPhone 8 Purchase

AAPL | August 31, 2017

If reports of a $1,000 iPhone 8 are true, how will Apple Inc. (NASDAQ: AAPL) convince consumers to buy a five-digit price tag phone? Analysts at Barclays may have the answer.

Barclays' Mark Moskowitz conducted a survey among iPhone users, which showed that their buying intention increases from 18 percent to 36 percent if the average selling price of the iPhone 8 drops from $1,000 or more to $800.

But Apple could bundle several services together to entice more consumers to pay $1,000, the analyst continued. For example, a free one-year subscription to Apple Music and iCloud would give a user a combined savings of $156 in services, which could prove to be a compelling enough deal that also provides Apple with bigger subscription revenue streams if the user chooses to renew when the free service expires.

In fact, a free one-year bundle could generate an incremental $9.8 billion in revenue for the iPhone franchise, Moskowitz added. On top of that, the incremental profits generated from selling a $1,000 iPhone instead of an $800 iPhone would outweigh the cost of offering the free service for a year.

Finally, a free one-year subscription would be accretive to Apple's earnings per share by just three cents in year one but spike to 32 cents per share in year two if 70 percent of users renew the service.

Chart: Why iPhone Average Selling Price Estimates Need To Move Higher