Apple Inc.'s (AAPL) Services business could double its revenues by 2020, according to a new research note from analysts at Credit Suisse. The firm, which has an Outperform rating for the stock, raised its price target on Apple by $10 to $170 based on its assessment. (See also: Apple Bets on Apps, Services to Fuel Growth.)

In the note, which takes a deep dive into Apple's business, Credit Suisse predicts that the Cupertino, California-based company's Services segment could turn into a substantial annual revenue stream and contribute as much as 33 percent to Apple's gross profit. The firm's analysts wrote in their note "that the markets underestimate gross profit contribution from Services but, more importantly, that it underappreciates its growth potential and the annuity-type business it drives in terms of retention and replacement across the business."

Credit Suisse estimates that revenue from Apple's Services segment will double to $52 billion by 2020 from its current $26 billion figure. Gross profit from the business will show a similar trajectory, doubling to $39 billion from $19 billion today. Apple's Services segment includes its iTunes App store, iCloud, Apple Pay and Apple Music. (See also: Apple Rises on Services and iPhone X Bullishness.)

The primary drivers for this growth are an increase in the number of installed Apple devices and the company's attractive customer demographics. According to Credit Suisse, the number of Apple devices will increase from 1 billion today to 1.5 billion by 2020. A high retention rate of over 90 percent and increased average customer spend will further boost Apple's Services revenues. (See also: Apple Said to Be Forming a Division for Cloud Services.)

In their note, the analysts also evaluated Apple's services stack, which includes an assortment of hardware and software offerings. This is important because provision of services is intimately linked with the creation of a hardware ecosystem for technology companies. For example, Apple's hardware offerings are a tightly controlled, closed ecosystem that runs on iOS, its mobile operating system. In contrast, Alphabet Inc. (GOOG) subsidiary Google's Android smartphones and tablets are manufactured by third-party manufacturers. They are open source and run on a mobile operating system that is customized to different flavors by these manufacturers. (See also: Android App Spending to Surpass Apple in 2017.)

Apple holds an edge here because its devices have already attained a cult-like following among users and customers. That edge is complemented by a variety of mechanisms that the company has put in place to offer content and other services. (See also: Top 3 Cult Stocks for 2017.)

For example, Apple Music is already the second most popular music streaming platform after Spotify. Similarly, the Apple TV app competes with the likes of Netflix, Inc. (NFLX) in the video streaming business. Apple is also a player in the gaming industry with its iTunes platform, which was responsible for last year's megahit Pokemon Go. Then, there is Apple Pay, which can be used for payment, while iMessage competes with the likes of Facebook Inc.'s (FB) WhatsApp in the messaging sweepstakes. In sum, Apple's services stack is comprehensive and already generates substantial revenue to contribute to its bottom line, unlike those of its competitors. (See also: Apple May See $3B in Pokemon Go Revenue.)

According to Credit Suisse, Apple's customers and devices are high end. This means that its devices have premium prices and are bought by affluent users, who transact frequently on them. Credit Suisse analysts posit that this trend is expected to continue in the future, as Apple expands to new markets, such as India and China. In fact, Credit Suisse predicts that Apple's spend per user will accelerate from approximately $68 in 2015 to $135 by 2020. "iPhone users earn more than their Android counterparts, and this indicates higher monetization potential (for the company)," the research firm's analysts wrote in their note. (See also: Apple Set to Begin Manufacturing in India.)

The analyst note also contains suggestions for Apple to generate more business from its Services segment. According to the analysts, Apple needs to double down on video streaming to generate more revenue. They suggested four routes that the company could take to gain traction from video streaming. First, Apple could continue its current strategy of enabling video downloads through its iTunes platform. However, the total addressable market for such a strategy is low, Credit Suisse analysts write. Second, Apple could aggregate a skinny bundle (similar to rival Google, which recently debuted YouTube TV) for customers. Third, it could produce original programming to attract users to its platform. Fourth, Apple could take the acquisition route and buy up a major streaming provider. Netflix is the best target, according to Credit Suisse. (See also: Google Launches YouTube TV.)

To be sure, Apple is already doing most of the things mentioned by the analysts. For example, it launched an updated version of its Apple TV app that features new partnerships with cable companies. The company is also said to be in talks with studios to produce original content for its app. (See also: Apple Pursues the Holy Grail of Original Content.)

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