Apple Looks to Cars and Banking for Its Next Big Thing

The math is daunting. To boost revenue by 10%, Apple needs to find $40 billion in additional annual sales. That’s about the size of the company’s Mac business, which has been around since 1984, or its entire “wearables, home, and accessories” segment, which includes Apple Watch, AirPods, and HomePods.

This past week, Apple showcased some of its new ideas at its annual Worldwide Developers Conference, or WWDC. Its nearly two-hour keynote address actually seemed light on game-changers. But beneath the surface, there were hints of where Apple might find the next big thing. Here are the options:

Augmented Reality: There have been widespread reports that Apple is close to launching glasses for augmented and virtual reality. The latest leaks suggested this year’s WWDC would finally offer the big reveal. If Apple is getting ready to launch a platform for AR/VR experiences, it needs its software developers to play along. But the company said nothing. Zilch.

While frustrated, Wall Street still believes. “Something big is coming,” says Gene Munster, an investor, former analyst, and longtime Apple watcher, now with Loup Ventures. But he concedes that “the silence was deafening.”

Munster points out that Apple had touched on AR every year at WWDC since 2017, when the company launched its first AR tools for developers, called ARKit. Munster says Apple is either winding down its AR ambitions or “somebody missed a target and they had to hold off.” He thinks the latter is more likely. Munster’s revised guess is that we’ll hear the Apple AR/VR story at WWDC 2023.

A slew of other large-cap tech companies are betting that augmented and virtual reality can become a huge business. Mark Zuckerberg is so convinced about the power of the so-called metaverse that he changed his company’s name to

Meta Platforms

(META).

Microsoft

(MSFT) is developing a version of its HoloLens smart glasses for business and military applications. If this turns out to be a huge opportunity, Apple will want to be there. But there isn’t a big market yet, and previous experiments have fizzled. (Remember Google Glass?) The market once thought Apple was going to build TVs. It never did.

Cars: While an Apple Car remains pure speculation, there was a new wrinkle at WWDC. Apple plans to dramatically expand its CarPlay platform to include every screen in the driver cockpit, including the speedometer and climate controls. Apple said the first cars with this more comprehensive version of CarPlay would debut late next year. It isn’t clear whether the demo signals a full Apple Car is coming—or whether Apple has decided instead to be an ingredient brand in other cars. CarPlay is now available on almost every car (

Tesla

[TSLA] being the major exception).

The car market has the sheer size and scope that would move the needle on Apple’s revenue—but the company outsources all of its manufacturing, and seems unlikely to start building automotive plants. Munster puts the probability of Apple actually producing a car at 45%. “The ambition is to have a car,” he says. “Whether or not they get there is another question.”

The new version of CarPlay “puts the Apple ecosystem at the center of the auto software experience in a way it hasn’t before—becoming more like a carOS than just one available app on a center-console display,” Morgan Stanley analyst Katy Huberty wrote in a research note. “We believe this is likely one part of Apple’s path toward developing a car operating system and could be a small taste of what’s possible with a potential Apple Car project.”

Meanwhile, Bernstein analyst Toni Sacconaghi sees risks for the auto industry in the spread of CarPlay. Consumers love CarPlay—Apple said that 79% of consumers would only consider buying a new car if it had CarPlay. In other words, Apple might not have to make a car—it might just slurp up more automotive features into its own platform, the same way the iPhone replaced digital cameras, music players, and maps.

Finance: At the keynote, Apple announced the launch of Apple Pay Later, a buy-now-pay-later service similar to those offered by

Affirm Holdings

(AFRM) and other companies. The service will allow people who use the company’s Apple Pay to divide purchases into four installments, with no interest charges. That’s the latest addition to the company’s growing portfolio of financial services, including the Apple Card, which is actually issued by

Goldman Sachs
.

While the Pay Later transactions will go through Goldman Sachs and over the

Mastercard

network, Apple will be taking on the financial risk attached to the service. That decision poses the intriguing idea that Apple could leverage its huge cash pile to become a bigger player in financial services—and there aren’t many bigger markets than that.

Call it Apple National Bank.

Write to Eric J. Savitz at eric.savitz@barrons.com