Apple (AAPL) wants iPhone buyers to stop thinking in four-figure purchases and start thinking in monthly bills. On July 28, the company launched Apple Upgrade, a lease run through Klarna (KLAR) that starts at $17.99 a month and lets users trade up to the newest iPhone every one or two years.
Demand is already strong. iPhone revenue jumped 22% to $54.3 billion in the June quarter, and total revenue grew 16%.
Why Galloway Calls it a “Gangster Move”
On the September 21 episode of The Prof G Pod, Scott Galloway put it bluntly: “Apple converting unpredictable transactions into predictable subscription revenue is a gangster move.”
His reasoning is about the multiple. The market pays “recurring revenues eight times, transactional revenues two times,” Galloway said. Apple, in his words, “is converting an unpredictable four-figure purchase into a predictable monthly payment that keeps customers inside its ecosystem.”
The TIKR Data Backs This Up
Apple’s gross margin sat near 38% for four straight years through fiscal 2020. Then services took a bigger share of the mix, and margin climbed every year to 46.9% in fiscal 2025. (Galloway puts services near 77% gross margin, against 39% for hardware.)
The driver is the mix. Services doubled its share of Apple’s revenue, from 13.1% in fiscal 2017 to 26.2% in fiscal 2025, and supplied $40.7 billion of the $50.3 billion in sales Apple added from fiscal 2021 on. Early gains didn’t lift the total because hardware margins slipped (product gross margin fell from 34.4% in fiscal 2018 to 32.2% in fiscal 2019). Once they steadied, the mix took over.
The market noticed. Apple’s NTM enterprise value to revenue went from 2.58x at the end of 2017 to 9.55x today.
Revenue didn’t drive that. Since fiscal 2021, sales have grown only about 3% a year, including a 2.8% decline in fiscal 2023, even as the multiple kept rising. LTM revenue of $466.8 billion now runs 12% above fiscal 2025, the first real acceleration in years.
But the Market Already Pays for This
Galloway’s math has a catch. Services made up 26% of Apple’s fiscal 2025 revenue ($109.2 billion of $416.2 billion). Blend eight times on that slice with two times on the rest and you get about 3.6x revenue. Apple trades at 9.55x, close to its 10-year high of 9.84x and 72% above its 10-year average.
So investors already value all of Apple as if it were recurring. Upgrade doesn’t earn a new premium. It defends the one that exists, extending the recurring logic to the iPhone itself.
That shift matters beyond Cupertino. Carriers like Verizon (VZ), T-Mobile (TMUS) and AT&T (T) have long used iPhone installment plans to keep customers. Apple is now offering the same hook directly.
Why Shareholders Should Watch the Multiple, Not the Units
A premium multiple needs predictable revenue behind it. Apple’s 9.55x rests on the belief that its customers don’t leave. A lease with a built-in upgrade date makes that belief easier to defend.
One caveat: Klarna holds the lease, so Apple hasn’t shown whether leased iPhones will look any more recurring on its own books. The next test comes with fiscal fourth-quarter results. If services keep compounding and Upgrade shortens the replacement cycle, I’d expect the multiple to hold near its highs (or even possibly grow some more) even when unit growth cools. That’s the hidden benefit.
The charts above take seconds to pull up yourself. Check Apple’s margins, multiples, and revenue history, or compare it with the carriers, all on TIKR for free. Learn more here.
