FORTUNE -- "Online services is an under-appreciated growth and margin lever for Apple," writes Morgan Stanley's Katy Huberty in a note to clients Wednesday.
It's all the more unappreciated because music streaming services like Pandora and Spotify have been cutting into iTunes music downloads.
Last quarter, each of Apple's (aapl) iTunes accounts spent an average of $3.29, down 24% year over year.
"At a high level," Huberty writes, "this raises concerns about Apple's ability to monetize the new base of emerging market customers."
But by the end of the year, App Store sales will have more than taken up the slack, Huberty predicts. And she sees several ways Apple could tap into one of the company's great unheralded resources: 800 million iTunes accounts, most of them attached to credit cards. She ticks off three new opportunities:
- Streaming music: Press reports... suggest Apple is considering the purchase of Beats Electronics, which would give Apple an accessories business focused on headphones and a music streaming service. Apple has not commented and we have no knowledge of any pending deals. However, a subscription music service -- whether organically built or acquired -- is a logical extension of iTunes.
- Mobile payments: While there is always the possibility Apple adds mobile payments purely as a vehicle to increase customer loyalty and sell more devices, we believe it's more likely to become a revenue generating service. We believe Apple can generate revenue through (1) advertisements, (2) subscription fees, and/or (3) transaction fees.
- iWatch: We believe Apple could ship 32-58M iWatch units in the first 12-months based on user base penetration of iPhone (low-end) and iPad (high-end). In 2013, the average user spent $18 on the App Store. Assuming the iWatch generates another $9 per year, this adds $43-80M of net revenue, or $0.02-$0.03 of EPS, in the first year and $188-261M of revenue, or $0.08-$0.11 of EPS, in the second year.
To these three new revenue sources, Asymco's Horace Dediu adds a fourth. In an open question to Apple senior vice president Eddy Cue, due to take the stage this week at the Re/Code conference, Dediu asks:
"Apple’s Services revenues are growing remarkably quickly. The number of users is over 800 million. Do you see an opportunity for services to become a more independent business at Apple? In other words, why not bring iTunes to Android?"
It's an interesting question. The iPod, which for several years was Apple's biggest money maker, didn't really take off until 2003, when the company brought iTunes to Microsoft (msft) Windows.