Goldman-Apple card draws rare praise from Morgan Stanley

BloombergNEW YORK (Bloomberg) — Goldman Sachs Group Inc.’s much-panned new credit card with Apple Inc. may in fact help both companies, according to Morgan Stanley.

The card should be out soon, analysts led by Katy Huberty and Betsy Graseck wrote in a note.

It may allow Goldman to build a consumer business that could cut earnings volatility.

Meanwhile, Apple should be able to pull consumers into stores and boost service revenue, leading to higher margins, even as “hardware growth prospects mature.”

“Pundits say it’ll be a profit bust,” the analysts said. “Not us.”

The Apple deal is another step toward Goldman’s boosting “loans and resultant net interest income, a more stable revenue source than trading revenues,” they said.

It also offers the bank “significant lead generation potential,” as some 45 percent of U.S. adults, or 113 million people, have an iPhone.

Also, half are active Apple Wallet users.

Goldman might be able to cross-sell and burnish its brand, too, as it interacts with Apple Card customers.

Even so, the analysts see a 2023 earnings-per-share gain of just 1 pecent for Apple, and 2 percent for Goldman, because the card has no fees, low interest rates, and its profitability will likely trail the industry average.

What the market “misses,” they say, is that by “layering in the benefit of shifting just 10 percent of U.S. hardware sales from third parties to the Apple stores, the profitability of the program increases from below average to average.”

They also contend that the card may drive overall Apple Pay usage, helping it gain share from PayPal Holdings Inc.

That in turn supports Morgan Stanley’s bullish outlook on Apple Pay, as per its separate consumer payments survey.

Analysts led by James Faucette wrote in a separate note that “PayPal and Apple Pay are the U.S. digital wallet front runners,” and lifted his price target for PayPal to $129 from $114.

On the other hand, Morgan Stanley doesn’t see much impact from the Goldman-Apple card on Citizens Financial Group Inc.’s existing iPhone upgrade partnership with Apple.

They also see an “immaterial” contribution for network provider Mastercard Inc., though the card “underscores Mastercard’s value proposition” to fintech companies.

In June, Apple was said to have ramped up a test of the card as it launched an internal beta program with its retail workers.

The move marked the first major trial for the card, which had been used for several weeks by a far smaller set of Apple corporate and Goldman employees.Speech

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