EFTA00644562.pdf

From: Richard Kahn • To: "jeffrey E." <[email protected]> Subject: Fwd: Apple, Inc.: Driving to a New Market Date: Mon, 16 May 2016 12:54:20 +0000 Richard Kahn HBRK Associates Inc. 575 Lexington Avenue 4th Floor New York, NY 10022 Begin forwarded message: From: "Morgan Stanley" <[email protected]> Subject: Apple, Inc.: Driving to a New Market Date: May 16, 2016 at 1:07:23 AM EDT To: <F > Reply-To: <mswmir-cie-feedbackOmorganstanley.com> Subscription Notification: May 16 ARS, Inc.: Driving to a New Market Katy L. Huberty, CFA — Morgan Stanley May 16, 2016 5:00 ,4M GMT We see positive near- and long-term implications from Apple's unexpected $1B investment in Didi Chuxing. Apple can learn more about the services business, especially in an important market like China, and maybe one day deploy its own cars as-a-service. Investment in Chinese ride-sharing business more than meets the eye. Apple recently messaged a greater appetite for acquisitions. Investor response was varied. Value investors want capital return and accretion. Growth investors want a transformative EFTA00644562 deal. Apple's $1B investment in Didi Chuxing is a balance of both — an insignificant dollar amount (at least to Apple and its shareholders) that potentially opens up transformative opportunities longer-term. We think near to medium term opportunities include better integration of Apple products (CarPlay, Music, Pay), and Apple learning more about China and services business models. Long term, if Apple chooses to launch a car, it can go to market as hardware-as-a-service instead of through traditional dealerships. An Apple autonomous car fleet paired with a leading (—87% market share in China) car sharing service creates a large addressable market. To put rough numbers around it, we estimate a $145B addressable market for ride-sharing in China by 2020, assuming 7% of the 2T miles are shared at a value of about $1/mile. We see significant growth to a roughly $500B market by 2030 as ride-sharing gains adoption while value per mile falls to $0.50. Apple leading with China, makes perfect sense. Apple has said China will soon be its largest market. US mobile services has proven a winner take all market, while share in China is more fragmented. Apple has 90% of its cash sitting overseas with a 30%+ cash tax hit if it brings the cash home to invest in a US company, making an international investment cheaper for investors even at the same or higher valuation. Apple has proven in the past its ability to make prescient and symbiotic investments, such as ARM or Imagination Technologi Click here to see the full report. This alert is sent from: Andrew Atlas, You received this because you asked to be alerted to: APPLE INC. Please contact your FA if you want to unsubscribe from the alerts. Disclosures: Please see the full report for risks, disclosures and other important information. Important disclosures regarding the relationship between the companies that are referenced in Morgan Stanley research and Morgan Stanley Wealth Management research are available on the Morgan Stanley Wealth Management disclosure website at hups:/Avww.morganstanley.com/onlinenNearchdisclosures. Morgan Stanley Wealth Management Not Acting as Municipal Advisor Morgan Stanley Wealth Management is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 15B of the Securities Exchange Act (the "Municipal Advisor Rule") and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of the Municipal Advisor Rule. Copyright The copyright in materials provided by Morgan Stanley is owned by Morgan Stanley & Co. LLC. Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States. O 2016 Morgan Stanley Smith Barney LLC. Member SIPC. EFTA00644563 IRI EFTA00644564