Apple rallies on Needham upgrade to 'strong buy'

"Our 1Q19 proprietary survey tells us that, whether or not Wall Street believes AAPL is an ecosystem company, its users do."

It said the most important value driver for an ecosystem is churn and the lower the churn the higher the lifetime value per user.

"AAPL uses add-on products (i.e., tablets, MACs, watches), features (i.e. AirDrop, etc), and services (i.e, Apple Music, Apple Pay, etc) to lower churn. On Monday, AAPL will announce a new content service that, if adopted by its users, should lower churn and drive higher lifetime value for each of AAPL's 900 million unique ecosystem users."

In addition, it might attract new users to Apple's ecosystem, Needham said.

Needham said it was lifting its price target as it now anticipates better-than-expected results from both services and wearables, home and accessories segments, as well as valuation upside created by Apple's Network Effects.

Analysts Laura Martin and Dan Medina went on to point out that Apple has five types of Network Effects, including the strongest type, Hardware-Based Direct Network.

"This, plus seven other metrics we compare, suggests that Apple's ecosystem is the most likely to prevail in a direct competition between FAANG ecosystems."

At 1650 GMT the shares were up 3.6% at $194.86.