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Morgan Stanley compares Apple to Nintendo while raising estimates

post #1 of 28
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Apple's iPhone 3G product cycle and high margin revenue from associated services and software can elevate the company's valuation closer to that of Nintendo, says Morgan Stanley, which sees growing similarities between the two firms' business models.

"Apple has a proven record of taking share while simultaneously expanding the markets it pursues," analyst Katy Huberty advised clients in a report issued Wednesday. "Similar to how Nintendo reignited video game interest in 2006, we believe the iPhones lowered price point will be central to growing an installed base primed for content purchases."

In particular, Huberty foresees "healthy" margins coming from Apple's new MobileMe and App Store services, both of which are closely tied to its iPhone 3G product plans. Therefore, she said, its most suitable to compare they Cupertino-based company's ambitions the "console+games model" of Nintendo rather than any other high-tech hardware firm.

Based around that thinking, the investment banking analyst has formed a new three-tier case scenario for shares of Apple during the 2009 calendar year. Her base case -- or most plausible model -- estimates that sales of 27 million iPhones will drive the company's annual revenues beyond $42 billion and its per-share earnings to $7.50. To arrive at her new 12-month price target of $210 per share (up from $185), she applied a 28 times price to earnings multiple, or what she calls the midpoint of where companies like Nintendo have historically traded.

Central to Huberty's thesis is that Apple will generate average revenues of $550 for every iPhone 3G it sells, assuming 8.5 percent of buyers attach the company's new $99 per-year MobileMe service and one out of two iPhone owners also pays to download one application per year from the Apps Store where Apple keeps 30 percent of the revenues. Those estimations are likely conservative, she notes, as the iPhone's related software and services business has potential for higher sales and margins over time.



More broadly, the analyst's base case scenario estimates that iPhone 3G will help Apple capture 12 percent of the worldwide smartphone market in 2009, up from 3 percent in 2007, and that its Mac unit share hits 4.1 percent, up from 2.9 percent in 2007.

Huberty's more bullish scenario assumes Apple shares will trade at a 30 times multiple to calendar year 2009 earnings, helped by a Mac share that edges higher to 4.5 percent and the company's slice of the global smartphone market hits 14 percent. In this scenario, which would have shares trading at $278, related services and software sales penetration from MobileMe and the App Store would help grow the company's revenues 37 percent, "with roughly twice the base case 2009 operating margin expansion."

"Apple's share price could benefit from the news flow during the 22-country iPhone launch on July 11th (similar to the 2G launch last year)," the Morgan Stanley analyst added. "In [the third quarter], focus shifts to back-to-school driven Mac sales, for which we maintain our unit growth forecast of 46 percent year-over-year."
post #2 of 28
I wish apple would bundle mobileme in with the monthly fee for iphone.

It annoys me having to pay $99 (or whatever it is i haven't looked recently) a year, but if $4 extra went on my monthly mobile bill (a hidden charge), and marketed to me as if part of the whole iPhone experience, I would think it was great.
post #3 of 28
Quote:
Originally Posted by monstrosity View Post

I wish apple would bundle mobileme in with the monthly fee for iphone.

It annoys me having to pay $99 (or whatever it is i haven't looked recently) a year, but if $4 extra went on my monthly mobile bill (a hidden charge), and marketed to me as if part of the whole iPhone experience, I would think it was great.

but how would you feel about $8 added to your monthly bill? I would notice that alot more. Additionally, not everyone needs the services of mobile me (some of us have businesses that support our phones).
post #4 of 28
Quote:
Originally Posted by AppleInsider View Post

Apple's iPhone 3G product cycle and high margin revenue from associated services and software can elevate the company's valuation closer to that of Nintendo, says Morgan Stanley, which sees growing similarities between the two firms' business models.
...

To arrive at her new 12-month price target of $210 per share (up from $185), she applied a 28 times price to earnings multiple, or what she calls the midpoint of where companies like Nintendo have historically traded.

The wording of this article is quite misleading. Nintendo's "valuation" is nowhere near Apple's (currently $8.4 billion to Apple's $158 billion). The point of comparison in the quoted analysis is the ratio between valuation and earning.

Another comparison between Apple and Nintendo: Apple does infinitely better at making sure production meets demand. I'm flabbergasted that Wii consoles are still difficult to purchase after all this time.
post #5 of 28
Quote:
Originally Posted by monstrosity View Post

I wish apple would bundle mobileme in with the monthly fee for iphone.

It annoys me having to pay $99 (or whatever it is i haven't looked recently) a year, but if $4 extra went on my monthly mobile bill (a hidden charge), and marketed to me as if part of the whole iPhone experience, I would think it was great.

$99 != $4 x 12 months. Plus, it's not a feature of the carrier and can be used without an iPhone. Also, if it was ont he carriers as a plan you may pay more per month because of teh nature of stretching out a payment and would probably be subject to all those expensive fees and taxes associated with phone bills.

First, try it out for 60 days for free, if you like it then go to Amazon and pay $70 for it. You ca get it cheaper still on eBay as the vesion of .Mac doesn't matter, it's the activation code inside you want.
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post #6 of 28
Quote:
Originally Posted by malax View Post

The wording of this article is quite misleading. Nintendo's "valuation" is nowhere near Apple's (currently $8.4 billion to Apple's $158 billion). The point of comparison in the quoted analysis is the ratio between valuation and earning.

The comparison is apt. I'm not sure if you read their 2007 revenue, which was $8.2B USD, or read Yen as Dollar, which they had ¥8.4T JPY back in Sept 2007. They are the number 2 company in japan, after Toyota. I think Apple's market cap is about double that of Nintendo.
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post #7 of 28
When Apple demonstrated gaming capability in WWDC08, it's quite clear Apple is aiming mobile gaming platform. With current Apple market capital, it wouldn't be surprise Apple will leverage some of its resource to dedicate for mobile games. If the App Store business model works well, expect to see a lot of games at affordable price. The estimate target for $210 per share is way undervalued as compare to Nintendo.
post #8 of 28
Off topic, but can you buy Nintendo stock in the US? Yahoo finance sort of lists it, but the info there is incomplete and somewhat kludgy looking.
post #9 of 28
Quote:
Originally Posted by minderbinder View Post

Off topic, but can you buy Nintendo stock in the US? Yahoo finance sort of lists it, but the info there is incomplete and somewhat kludgy looking.

It looks like it's listed as NTDOY.PK. I'm not sure how the pink sheets work. I thought it was companies that aren't doing well.
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post #10 of 28
A couple of months ago I saw a video of Iwata. I think it was Nintendo's annual shareholder meeting, but I don't remember, and can't seem to find it anymore. Anyways, I was surprised when I realized that his presentation was put together with iWork and he seemed to be running it off of a Macbook Air. That's the first time I'd seen Keynote/Numbers in the wild for a major presentation that wasn't Steve Jobs based.
post #11 of 28
Quote:
Originally Posted by solipsism View Post

It looks like it's listed as NTDOY.PK. I'm not sure how the pink sheets work. I thought it was companies that aren't doing well.

It is also for companies who don't want to conform to the accounting requirements
of major stock exchanges.
post #12 of 28
Quote:
Originally Posted by malax View Post

The wording of this article is quite misleading. Nintendo's "valuation" is nowhere near Apple's (currently $8.4 billion to Apple's $158 billion). The point of comparison in the quoted analysis is the ratio between valuation and earning..

Some people use "valuation" interchangeably with price/earnings ratio.
You can tell by the context that this analyst is one of them.
post #13 of 28
Quote:
Originally Posted by quinney View Post

It is also for companies who don't want to conform to the accounting requirements
of major stock exchanges.

Thank you.
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post #14 of 28
I run an all Lexus hybrid limousine service and I can tell you 2 things

1. I am swapping all of our blackberry phones (curve) to iphone as soon as they are available

2. A lot of our corporate clients in Australia cannot wait to do the same

I anticipate that exposure to Apple products including their computers, will undoubtedly be increased through iphone.

I think that the author is on the money (not that this is rocket science!)

Russell www.ecotaxi.com.au
post #15 of 28
Quote:
Originally Posted by monstrosity View Post

I wish apple would bundle mobileme in with the monthly fee for iphone.

It annoys me having to pay $99 (or whatever it is i haven't looked recently) a year, but if $4 extra went on my monthly mobile bill (a hidden charge), and marketed to me as if part of the whole iPhone experience, I would think it was great.

Um but those two amounts are not equal - you're saying you'd be OK if they cut the price in half.
post #16 of 28
Quote:
Originally Posted by solipsism View Post

$99 != $4 x 12 months. Plus, it's not a feature of the carrier and can be used without an iPhone. Also, if it was ont he carriers as a plan you may pay more per month because of teh nature of stretching out a payment and would probably be subject to all those expensive fees and taxes associated with phone bills.

First, try it out for 60 days for free, if you like it then go to Amazon and pay $70 for it. You ca get it cheaper still on eBay as the vesion of .Mac doesn't matter, it's the activation code inside you want.

Ha I know 4 x 12 !=99 I forget how picky to detail the net can get, it was a number plucked out my ass as an example.

I doubt there is anything to stop apple including mobileme within the revenue sharing deal of the carriers, which I'm sure are intact to some extent.
What expensive fees and taxes do you mean? I'm sure it can be subsidized.

The other way would be to give it away for free and sell web apps tied to it taking 30% (ala iphone).
I have not considered the last point in much detail, but I certainly dont like the idea of paying $99 a year, it annoys me, there must be other ways to monetize mobileme.
post #17 of 28
Quote:
Originally Posted by monstrosity View Post

Ha I know 4 x 12 !=99 I forget how picky to detail the net can get, it was a number plucked out my ass as an example.

I doubt there is anything to stop apple including mobileme within the revenue sharing deal of the carriers, which I'm sure are intact to some extent.
What expensive fees and taxes do you mean? I'm sure it can be subsidized.

The other way would be to give it away for free and sell web apps tied to it taking 30% (ala iphone).
I have not considered the last point in much detail, but I certainly dont like the idea of paying $99 a year, it annoys me, there must be other ways to monetize mobileme.

Annoying yes, but I'll be paying it. For $8 a month, it's very worth it. Hell, if I had to sit down and figure out how much time and trouble it will save me, I'd probably find that its worth 5 times what they are charging.

One of the big things I was looking forward to with the new firmware was the ability to sync over wifi. This will make that happen for me. The added ability to sync constantly no matter where I am in the world really is a huge thing for me. I had to work around the problem of sometimes adding events to my Outlook, and sometimes to my iPhone, and the lag that would happen until I synced. I love it.
post #18 of 28
Quote:
Originally Posted by monstrosity View Post

I doubt there is anything to stop apple including mobileme within the revenue sharing deal of the carriers, which I'm sure are intact to some extent.
What expensive fees and taxes do you mean? I'm sure it can be subsidized.

Cell phone bills have a lotof taxes associated with them. I'm not sire if such a service would be included or not as my eyes gloss over quickly when trying to understand why my actual cost is so much higher than $60 per phone + state sales tax.

Regardless, It's not a good idea to include it with a carrier because the iPhone is not a requirement of Mobile Me. What if I have a work PC, a Mac at home and an IPod Touch I wish to sync with Mobile Me? Your method would require an account with a carrier, even though I don't have an iPhone.
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post #19 of 28
Quote:
Originally Posted by solipsism View Post

Cell phone bills have a lotof taxes associated with them. I'm not sire if such a service would be included or not as my eyes gloss over quickly when trying to understand why my actual cost is so much higher than $60 per phone + state sales tax.

Regardless, It's not a good idea to include it with a carrier because the iPhone is not a requirement of Mobile Me. What if I have a work PC, a Mac at home and an IPod Touch I wish to sync with Mobile Me? Your method would require an account with a carrier, even though I don't have an iPhone.

I'm suggesting apple should keep the $99 for those who dont have an iphone, but those who do get mobileme chucked in (for what would appear to be free, but we know different).
One day there will be far more iphones than macs, and the iphone already has a recurring payment model to take advantage of, which people are pretty used to.
post #20 of 28
Quote:
Originally Posted by ecotaxi View Post

I run an all Lexus hybrid limousine service and I can tell you 2 things

1. I am swapping all of our blackberry phones (curve) to iphone as soon as they are available

2. A lot of our corporate clients in Australia cannot wait to do the same

I anticipate that exposure to Apple products including their computers, will undoubtedly be increased through iphone.

I think that the author is on the money (not that this is rocket science!)

Russell www.ecotaxi.com.au

It will be easy to swap out all your BBs for iPhones because you probably have less than 50, right. Most of the IT people think the iPhone is feeble because they can't deploy apps to 100,000 iPhones without a lot of hassle. It's probably not an iPhone limitation, it's just that Apple probably hasn't offered a solution for those huge numbers yet.

I'm not sure the author is right on the money. In all honesty, Apple should be well over $200 right now, but it certainly isn't. All those paper numbers mean very little. That's just theoretical stuff. Apple is stronger now than it was six months ago when it was at $200. A couple of bad media reports can send Apple plunging to the depths if it scares investors. Apple has everything going for it except it's investors are easily swayed by negative speculation and rumors. If someone who looks like Steve Jobs is seen at a hospital, Apple's stock will shed 6%. The thing I wish most is that Apple could steal away RIM's investors. They are true believers in their stock and that's why RIM steadily advances while Apple's stock bobs up and down like an apple.

I'm long on Apple, and have made decent profits, but it's not an easy road to follow on a day by day basis.
post #21 of 28
Quote:
Originally Posted by solipsism View Post

The comparison is apt. I'm not sure if you read their 2007 revenue, which was $8.2B USD, or read Yen as Dollar, which they had ¥8.4T JPY back in Sept 2007. They are the number 2 company in japan, after Toyota. I think Apple's market cap is about double that of Nintendo.

Thanks for pointing out my error. I was sloppy in checking the numbers. The source I used was http://www.bloomberg.com/apps/quote?ticker=7974:JP and it just says "Market Cap (Millions) 8,429,306.000" without any currency listed, so I misread it as $8.4 billion rather than 8.4 TRILLION Yen. That's $78 billion. Holy crap that's a lot of Wii's, DS's, and Pokemon cards!

Still my original point stands: Apple isn't approaching Nintendo's valuation; it's well past it. From the article one might assume that Nintendo has a higher market cap, but it doesn't. (Although, wow, I had no idea it was that high. #2 after Toyota, sheesh??)
post #22 of 28
Quote:
Originally Posted by malax View Post

Still my original point stands: Apple isn't approaching Nintendo's valuation; it's well past it. From the article one might assume that Nintendo has a higher market cap, but it doesn't. (Although, wow, I had no idea it was that high. #2 after Toyota, sheesh??)

Their stock has gone up 4x in 2 years. They are a long way of equaling Apple, but they have similiar growth and they have had a rebirth with new enticing products. In that sense, which I think the author may have been alluring too, it seems to be a good comparison to me.
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post #23 of 28
Quote:
Originally Posted by solipsism View Post

Their stock has gone up 4x in 2 years. They are a long way of equaling Apple, but they have similiar growth and they have had a rebirth with new enticing products. In that sense, which I think the author may have been alluring too, it seems to be a good comparison to me.

He may have been alluding to it too
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post #24 of 28
Quote:
Originally Posted by digitalclips View Post

He may have been alluding to it too

hehe Nice catch.
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post #25 of 28
Quote:
Originally Posted by solipsism View Post

hehe Nice catch.

It's my birthday, forgive me
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post #26 of 28
Quote:
Originally Posted by digitalclips View Post

He may have been alluding to it too

As long as he didn't give the illusion of eluding the allusion.

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #27 of 28
Quote:
Originally Posted by digitalclips View Post

It's my birthday, forgive me

I didn't know you were still counting. Happy Birthday!

PS: Does the Best Buy in Sarasota have an Apple Store kiosk yet?
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post #28 of 28
Quote:
Originally Posted by solipsism View Post

I didn't know you were still counting. Happy Birthday!

PS: Does the Best Buy in Sarasota have an Apple Store kiosk yet?

Yes it does, at LAST! Not that I have ever seen any staff there.

I did stop counting but still like the dinner out Plus the wife gave me X-Plane v.9 woooohooo!
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