Apple's iWatch and Apple TV initiatives could drive an additional $80 billion in yearly revenue

Posted:
in iPod + iTunes + AppleTV edited January 2014
Arguing that the current discount on Apple shares factor in a significant deceleration in revenue and earnings growth that is unjustified in light of medium and long-term growth drivers, Morgan Stanley on Tuesday issued a fairly bullish report estimating that company could generate more than $80 billion in incremental revenue though global penetration of its rumored iWatch and Apple TV initiatives.

iWatch concept
Artist's rendition of a curved glass iOS-based watch | Source: Yrving Torrealba


Employing her firm's "What's in the Price" analyzer, analyst Katy Huberty advised clients that the market is currently pricing -4% long-term earnings per share (EPS) growth in the stock despite the company achieving 14% revenue growth in the markets it serves.

"In other words, investors expect significant share losses and/or margin contraction," she said. "In addition to iPhone market expansion through new products and carrier partners, Apple?s entry into new markets can help shift investor perception of long-term growth."

In particular, Huberty's analysis of the market potential for the recently rumored Apple iWatch product -- which she admits no direct knowledge of -- found that it could drive an incremental $10 to $15 billion in revenue, or $2.50 to $4.00 in EPS, each year. The estimate assumes a 20% attach rate to the roughly half a billion active iTunes users and sell-through of 50 million units yearly at and an average selling price between $200 and $300.

Those figures would double or triple should Apple see attach rates -- the percentage of current iTunes users who would purchase or "attach" an iWatch to their Apple ecosystem -- jump to 40% and 60%, respectively. Huberty's estimates also assume an average lifespan or consumer update cycle of 2-years for each iWatch sold.

Meanwhile, it's estimated Apple could tack on another $17 billion in annual revenue, or $4.50 in EPS, from a U.S.-based rollout of a smart TV project. The estimates, based on an average selling price of $1,300 for the TV and 10% penetration of iTunes account holders, swell to $68 billion and $18.00 in EPS for a full-blown global roll-out.

Morgan Stanley Data

"Importantly, iTV and iWatch present new services opportunities that can differentiate Apple's broader product portfolio, improving investor sentiment around Apple?s ability to maintain market share," Huberty said. "Possibilities include, mobile payments service linked to iTunes / iWatch and video search and multi-screen viewing with iTV."

Her base case scenario for Apple shares implies a $630 price target based on 14 times calendar year 2013 EPS of $45 on 13% revenue growth from 152 million iPhone and 95 million iPad shipments as distribution expands in these faster growth markets. It also assumes gross margin will remain flat at 39% and takes into account adjustments for the company's $137 billion cash balance.

Morgan Stanley Data

Should Apple see revenue grow by 37% in 2013 and gross margins jump to 44.4% on the back of 210 million iPhone and 120 million iPad shipments with higher selling prices, Huberty's price target would soar to $980 a share. Her bear case scenario of $400 per share would only apply if Apple started bleeding market share to Samsung and Microsoft, while being forced to introduce extremely low-priced devices for emerging markets.

In terms of near-term catalysts, Huberty believes shares will benefit from new iPhone products, including a lower-price model for emerging markets in the summer of 2012, an iPad refresh around the same time, larger dividend payments to investors, and new carrier partnerships with NTT Docomo, T-Mobile, and China Mobile during the second half of the year or early 2014.

The analyst maintained her Overweight rating on shares of the iPhone maker alongside her $630 price target.
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Comments

  • Reply 1 of 45
    rogifanrogifan Posts: 10,669member


    Well Street, please shut up.

  • Reply 2 of 45
    antkm1antkm1 Posts: 1,441member


    We are seriously talking about an iWatch?  that has got to be the dumbest idea and/or rumor i've heard in a while.  Probably since the iPhone mini/nano.  I see absolutely no purpose for such a device.  If you carry an iPhone...how freakin' lazy can you be to have to check a watch instead of pulling your phone out of your pocket?

  • Reply 3 of 45
    antkm1antkm1 Posts: 1,441member

    Quote:

    Originally Posted by Rogifan View Post


    Well Street, please shut up.



    typical Wall Street bullying...trying to step into Apple business and tell them what to do...or else they'll put the smack-down on their stock.


     


    please let apple go back to a privately owned company.  Leave the ideas to the designers and the people who built the company...not some idiots that can't see past a projection graph.

  • Reply 4 of 45
    antkm1 wrote: »
    We are seriously talking about an iWatch?  that has got to be the dumbest idea and/or rumor i've heard in a while.  Probably since the iPhone mini/nano.  I see absolutely no purpose for such a device.  If you carry an iPhone...how freakin' lazy can you be to have to check a watch instead of pulling your phone out of your pocket?
    You must not have any concept of what it's like to work for a living. In many workplaces it is frowned upon to use your phone on company time. Some even forbid you to have it on your person.
  • Reply 5 of 45
    solipsismxsolipsismx Posts: 19,566member
    Two rumours could increase revenue by a made up amount. Genius¡
  • Reply 6 of 45

    Quote:

    Originally Posted by antkm1 View Post


    ...how freakin' lazy can you be to have to check a watch instead of pulling your phone out of your pocket?



    I guess that you've never attended an event when everyone was asked to turn off their cell phones.

  • Reply 7 of 45
    jragostajragosta Posts: 10,473member
    antkm1 wrote: »
    We are seriously talking about an iWatch?  that has got to be the dumbest idea and/or rumor i've heard in a while.  Probably since the iPhone mini/nano.  I see absolutely no purpose for such a device.  If you carry an iPhone...how freakin' lazy can you be to have to check a watch instead of pulling your phone out of your pocket?

    Lots of reasons:

    1. It's easier to glance at your wrist than to pull your phone out.

    2. Many companies have policies against phone use. Even if there's no policy, pulling your phone out during a meeting is a faux pas.

    3. Phones off during takeoff and landing - and most people leave them off for the full flight.

    4. Most of the rumored phones do more than show the time. They show weather, etc. In order to see that on your phone, you have to do more than just glance at the phone.

    As always, if you don't like the idea, don't buy one. But please don't pretend that yours is the only possible position and that no one has the right to have different wants than you.
  • Reply 8 of 45
    MacProMacPro Posts: 18,373member
    rogifan wrote: »
    Well Street, please shut up.

    Amen to that!
  • Reply 9 of 45
    Projections seem wildly optimistic. 20% take up? $200-$300?
  • Reply 10 of 45

    Quote:

    Originally Posted by SolipsismX View Post



    Two rumours could increase revenue by a made up amount. Genius¡


     


    Two rumors and an AI story makes it an absolute metaphysical certitude. Time for Tim Cook to don his money cape and save the world!

  • Reply 11 of 45

    Quote:

    Originally Posted by SolipsismX View Post



    Two rumours could increase revenue by a made up amount. Genius¡




    Let me get this straight:


     


    1. Apple sells a gazillion iPhones and iPads and gets downgraded


     


    2. Rumors come out about an iWatch and an Apple TV and Apple gets upgraded

  • Reply 12 of 45
    I have an iPhone. It's always less than a meter from me. It's my alarm clock and my iPod and my Mail.app, only mobile.

    I feel seriously stressed when I don't have my watch to check the time. It's a cheap Fossil watch (less than 200$) in steel and glass, nothing fancy. It is designed for me to know time, and it does just that.

    Anyone who can't understand why other people would want a watch just don't understand that they are not the only people on Earth.
  • Reply 13 of 45


    Can't say I'd want an iWatch.  At first I thought the Pebble was cool and then I realized, it's just not for me.  But to some of the points above, my company doesn't care if my iPhone sits on my desk all day or even how much I use it, for that matter.


     


    I already have an Apple TV.  Give me unbundled channels, I don't need an Apple screen necessarily.

  • Reply 14 of 45
    maestro64maestro64 Posts: 4,658member


    For those who are arguing the usefulness of a watch, go walk around and see how many kids wear watches today, Grant it, I do not get since I rather wear a watch than pulling my phone out of my pocket and watches can be a fashion statement as well and part of your look. However, those of us who see watch like I do are dinosaurs as my kids kindly point out. There is nothing you can do to get most kids to wear a watch.


     


    Face it, everything Apple as done in the last 10 yrs was driven by the 20somethings and then everyone else followed. If those groups are not looking for a watch I am not sure it would be a success. But then again we know Apple has it way of distorting thing.

  • Reply 15 of 45
    All this is non-sense. As soon as you get smart watches those same companies will stop you from looking at your wrist watch because you could be doing personal stuff on company time. It will make no difference same story/reasons different device. I stopped buying wrist watches when I got my first cell-phone and I'm not buying one again. $200-300 wasted on such device.
  • Reply 16 of 45
    geekdadgeekdad Posts: 1,131member

    Quote:

    Originally Posted by jragosta View Post





    Lots of reasons:



    1. It's easier to glance at your wrist than to pull your phone out.



    2. Many companies have policies against phone use. Even if there's no policy, pulling your phone out during a meeting is a faux pas.



    3. Phones off during takeoff and landing - and most people leave them off for the full flight.



    4. Most of the rumored phones do more than show the time. They show weather, etc. In order to see that on your phone, you have to do more than just glance at the phone.



    As always, if you don't like the idea, don't buy one. But please don't pretend that yours is the only possible position and that no one has the right to have different wants than you.


    i agree with your reasons.... I am in meetings most of the day. It is not good corp etiquette to pull out your phone to check what time it is ...it send the wrong message to the presenters and VIPs in the meeting room. I looked around me today in my meeting and about half the people in the room had a watch on.


    But having said that I do not wear one myself. I would not buy an Apple watch...but I do agree there would be a market for one. Plus leave it up to Apple to maybe inovate and add a little exta to make it appeal to the masses....

  • Reply 17 of 45
    Analysts are always talking about some new product being the driving force behind Apple and some nonsense about changing investor's perceptions. This is only rumored stuff and Apple is going nowhere. Most shareholders should consider themselves lucky if the stock is able to maintain its present levels. The toxicity is high in this stock. Volatility makes this stock worth either $400 or $700 with a bias towards the low side. We're not talking Google or Amazon. This is Apple and they'll have to add tens of billions of dollars in revenue just to move the stock up $50. Who wants to invest in an anvil stock like that? Almost no one. An iWatch would add maybe 2% to Apple's revenue. Forget it. It's nothing but a waste of time. Apple better come up with some device that can't possibly be duplicated by any other company in the world.
  • Reply 18 of 45
    geekdadgeekdad Posts: 1,131member

    Quote:

    Originally Posted by island hermit View Post




    Let me get this straight:


     


    1. Apple sells a gazillion iPhones and iPads and gets downgraded


     


    2. Rumors come out about an iWatch and an Apple TV and Apple gets upgraded



    yep....new revenure streams to make profit from.....

  • Reply 19 of 45

    Quote:

    Originally Posted by geekdad View Post


    yep....new revenure streams to make profit from.....





    That don't exist and may never exist.


     


    Apple should just keep the rumors coming... hell the stock would be over $1000 in no time.

  • Reply 20 of 45
    andysolandysol Posts: 2,506member
    maestro64 wrote: »
    For those who are arguing the usefulness of a watch, go walk around and see how many kids wear watches today, Grant it, I do not get since I rather wear a watch than pulling my phone out of my pocket and watches can be a fashion statement as well and part of your look. However, those of us who see watch like I do are dinosaurs as my kids kindly point out. There is nothing you can do to get most kids to wear a watch.

    Face it, everything Apple as done in the last 10 yrs was driven by the 20somethings and then everyone else followed. If those groups are not looking for a watch I am not sure it would be a success. But then again we know Apple has it way of distorting thing.
    I'm 29. I never wore a watch because I had a cell phone in High school. I wear a watch daily now. Kids mature into adults, and if you dress for success (which you should- regardless of your business)- then you wear a watch. There is a huge connection between dressing successful and being successful in the workplace.

    My dad would always ask me why I never wore a watch, and I always told him "why? I have a phone." But in addition to never wearing a watch, I also never wore a jacket- regardless of the temperature. And id wear flip flops in November. Bottom line- kids are idiots. Hah

    An apple watch will be pretty genius and extremely functional and useful- but also likely only worn by nerds. Calculator watches were very practical, but umm... Who wore them? I think it's a bad idea.
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