A "razor-razorblade" business model refers to a company selling a dependent product at a small profit or even at a loss — the razor — to lure customers into an ecosystem so they end up buying higher-margin products — the razorblade — over a long period.
So long as Apple generates more than 60 percent of its total revenue from the iPhone, Street analysts will care more about the "razor" than the much higher-margin services business, or the "razorblade," Cramer said during his daily "Mad Money" show. Fortunately for investors, there is a path for Apple to change the narrative and convince analysts to rate the stock at a higher multiple, he said.
Why It's Important
Apple's existing user space spans more than 1.3 billion people worldwide, and the company needs to convince users its hardware devices have "tons of other uses," Cramer said. One of the more notable areas where Apple is expanding features is in the health care sector, which could save millions of lives, he said.
For example, the Apple Watch could be "better than going to the doctor's office" for an electrocardiogram, Cramer said. An EKG reader built into a smartwatch offers a "more accurate reading," which gives a doctor a better picture of their patient's health and can help better predict heart failure, he said.
Cramer doesn't expect that Apple's major push into services will meaningfully lift the stock price "anytime soon."
Until it does, the stock will continue trading on "every little data point" that gives insight into iPhone sales, he said.
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Photo courtesy of Apple.
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