Wall Street expects high margins, respectable sales for launch of well-designed Apple Watch

Posted:
in AAPL Investors edited March 2015
Analysts on Wall Street came away generally pleased with this week's announcement of Apple Watch launch details, viewing the new platform as a way to extend the company's valuable ecosystem and generate more revenue from high-margin products.




Following Monday's "Spring Forward" event, analysts provided their reactions to the announcements to AppleInsider and investors. A rundown of their takes follows.

Morgan Stanley

Katy Huberty originally believed the average selling price of the Apple Watch would be around $450. But with pricing announced on Monday, and the stainless steel model starting at $549, she now believes the ASP over the first 12 months could be around $618.

Huberty's assumptions call for Apple to account for 1 percent of the 30 million unit-per-year Swiss luxury watch market with its high end Apple Watch Edition, starting at $10,000. She also forecasts the rest of Apple's sales to be split between the entry-level Sport and mid-range collections.

Her initial estimates called for Apple to earn 45 percent margins on the Apple Watch, but she said that even that number could prove conservative when sales begin.

Morgan Stanley has maintained an "overweight" rating for AAPL stock with a price target of $160.


Piper Jaffray

To Gene Munster, the "killer feature" of the Apple Watch is its design. He believes this point may have been lost on many investors, after Apple's stock closed essentially flat following Monday's announcement.

"Apple is trying to reinvent how people think about watches in general, not smartwatches," Munster wrote. "As such, we believe the design of the watch and the Apple brand are the two biggest selling points and the technical features are a value add vs. a standard watch."

Like Huberty, Munster also raised his average selling price projection for the Apple Watch. His new forecast calls for the device to have an ASP of $550, up from his prior estimate of $500, after pricing in the mid- and high-end of the lineup came in higher than he expected.

Piper Jaffray has also maintained its price target of $160 for AAPL.

UBS

Though the Apple Watch received a good reception on Monday in the eyes of Steven Milunovich, he also believes there isn't yet a "killer app" for the wrist-worn device.

"(Apple CEO Tim) Cook has said the breadth would surprise consumers, and perhaps that is sufficient," he wrote.

Milunovich also cited supply chain checks which suggest that manufacturing ramp up for the Apple Watch has been slow. The recent yield rate for the device is said to be around 75 percent, and a labor shortage after the Chinese New Year at Quanta Computer has reportedly led Apple to reach out to Foxconn for help.

Milunovich forecasts Apple to sell 6 million Apple Watch units in the June quarter, followed by 10 million per quarter after that. UBS has maintained its "buy" rating on AAPL with a price target of $150.

Evercore ISI

Not only does Rob Cihra think the Apple Watch will be successful, but he believes it will be the only successful smartwatch on the market. His forecast calls for sales of more than 18 million units in calendar year 2015, earning $10 billion in revenue and accounting for 4 percent of Apple's total.

By early 2016, he believes the Apple Watch will have an attach rate of about 5 percent with the overall iPhone installed base.

To Cihra, the Apple Watch hits the "style intangible" he believes is necessary for a product that's just as much about fashion as it is about function.

His ASP target for the Apple Watch was revised to $535, up from his previous prediction of $500. He expects the Sport model to account for about two-thirds of the mix.

Evercore has raised its price target on AAPL from $140 to $160, and continues to advise investors with a "buy" rating.


J.P. Morgan

Rod Hall was at Apple's event Monday and got his hands on an Apple Watch, and he came away impressed. Even with only native apps, he believes the Apple Watch will provide a lot of value to iPhone users.

Still, Hall reduced his earnings per share estimates for this year by 0.5 percent, and next year by 1.5 percent. That's becasue Apple's pricing on the stainless steel model actually came in lower than he had expected.

Hall also believes that Apple's advertised 18-hour battery life for the Apple Watch may prove conservative in real-world use.

His estimates call for an average selling price of $379 for the Sport version, and $750 for stainless steel. Overall blended ASP is pegged much lower than his peers, at $398.

Hall has maintained his "overweight" rating for AAPL stock with a price target of $145.

BMO Capital Markets

Apple's presentation gave "interesting and compelling use cases" for the Apple Watch, in the eyes of Keith Bachman. He was particularly excited about having an airline boarding pass on his wrist to free up hands while traveling.

Bachman was also present at Monday's event, and noted he was also surprised at how light the Apple Watch is to wear, even at the larger 42-millimeter size.

Bachman has not changed his forecasts, which remain at 19 million units with an average selling price of $420. He assumes 35 percent margins on the Watch itself, and "solid" margins on the various bands available.

BMO has maintained its "outperform" rating on AAPL with a price target of $135.


Cowen and Company

To Timothy Arcuri, the Apple Watch presents "fashion over form (for now)." He believes initial pricing is too high for the current feature set.

In Arcuri's view, "v1.0 is more of a set-up for v2.0." He estimates sales of 5 million units in the June quarter, and 8 million in the September quarter, with average selling prices just shy of $450.

Arcuri believes that Apple may update the Apple Watch platform very soon. He suspects that "2.0 Watch versions" will debut this fall and will not require tethering to an iPhone --?something that he believes limits the potential market significantly.

Cowen and Company continues to have a favorable "outperform" rating on AAPL stock, but has not yet updated its underwater price target of $115.

Wells Fargo

Noted Apple bear Maynard Um's price target has been underwater for awhile, but he revised it following Monday's presentation to a new valuation range of $120 to $130. He has also maintained his market perform rating.

Unsurprisingly, Um came away disappointed from Monday's event, citing battery life that requires daily recharging, and an April 24 launch that is six weeks away.
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Comments

  • Reply 1 of 53
    wood1208wood1208 Posts: 1,763member
    Knock knock - With Apple watch coming, what Android wear smartwatches do ? Answer is "Run for the HILL".
  • Reply 2 of 53
    heliahelia Posts: 170member
    Quote:

    Originally Posted by wood1208 View Post



    Knock knock - With Apple watch coming, what Android wear smartwatches do ? Answer is "Run for the HILL".

     

    More like Lets See Who Can Copy What Faster

  • Reply 3 of 53
    Quote:

    Originally Posted by helia View Post

     

     

    More like Lets See Who Can Copy What Faster




    They can't. Apple has a five year lead on them, minimum. And they'll never catch up from an OS standpoint. Especially since we didn't have Google spies on the board this time.

     

    Maynard Um...I'd be embarrassed to take financial advice from him.

  • Reply 4 of 53
    wood1208wood1208 Posts: 1,763member
    I show article on Phandroid about you can buy 5 android watches for one very high end apple watch. Well, here is my answer.
    Yes, I can buy 5 of either toyota corolla or GM somthing, Honda civic, Ford something, WW beetle, Subaru something, etc cars for one Mercedes S500 or BMW 7-series or Audi or Lexus 4 series, etc. So more of one is not equivalent to one of other. In software programming, 5 Android smartwatches != or < 1 Apple Watch.
  • Reply 5 of 53
    It will definitely be interesting to see what the effect will be on other smart watch makers, i.e., will they try to make more bands, try to advertise their product as more a luxury-type device. But of course, they were going to do that anyway, :) .
  • Reply 6 of 53
    Quote:

    Originally Posted by wood1208 View Post



    I show article on Phandroid about you can buy 5 android watches for one very high end apple watch. Well, here is my answer.

    Yes, I can buy 5 of either toyota corolla or GM somthing, Honda civic, Ford something, WW beetle, Subaru something, etc cars for one Mercedes S500 or BMW 7-series or Audi or Lexus 4 series, etc. So more of one is not equivalent to one of other. In software programming, 5 Android smartwatches != or < 1 Apple Watch.

     

    I think a more apt comparison would be 5 Yugos...

  • Reply 7 of 53
    tundraboytundraboy Posts: 1,597member


    Post withdrawn by me.


     


  • Reply 8 of 53
    herbapouherbapou Posts: 2,214member

    They can't. Apple has a five year lead on them, minimum. And they'll never catch up from an OS standpoint. Especially since we didn't have Google spies on the board this time.

    Maynard Um...I'd be embarrassed to take financial advice from him.

    Omg, 5 years really... Imo the Android watches will catch up within 1 year.
  • Reply 9 of 53
    rob53rob53 Posts: 1,974member

    Wall Street might have been happy but it didn't last through the end of yesterday's trading and definitely disappeared this morning with a total selloff across the entire market hitting AAPL very hard. What were they expecting, free watches?

  • Reply 10 of 53
    SpamSandwichSpamSandwich Posts: 30,571member
    Analyst Timothy Acuri certainly comes off as a dolt.
  • Reply 11 of 53
    jd_in_sbjd_in_sb Posts: 1,483member
    I wish Apple luck. I have ownerd every model iPhone ever made yet have no interest at all in the watch. Hopefully I am not the norm.
  • Reply 12 of 53
    tundraboytundraboy Posts: 1,597member

    The killer app is not "design" or some specific app.  The killer app is Convenience.  And as always, convenience offered by a device isn't usually obvious until you start using it. Once you do though, you can't imagine parting with the dang thing.  How many of us who were adults during the pre-mobile phone era feel naked if we leave the house today without our phones?

     

    The daily use demo by Kevin Lynch might look uninteresting but boarding a plane without having to pull out your phone?  Little conveniences like that are what will make life without an AppleWatch unimaginable once you start using one.  Most of us think of going to the airport and catching a plane as one of the most unpleasant recurring tasks we face.  When other passengers see you whiz through the final gate checkpoint, that will resonate; no ad can be more effective at selling the device.

  • Reply 13 of 53
    wood1208wood1208 Posts: 1,763member
    Some of the Bear, negative analysts were wrong on Apple and they can be again. Again if market sells of across the board than obviously every stocks go down in sympathy and other way around like when market goes up but that time stocks like AAPL go up so fast that those not in or on sidelines may loose on opportunities making money. If history is any indication.
  • Reply 14 of 53
    satchmosatchmo Posts: 2,699member
    Quote:

    Originally Posted by jd_in_sb View Post



    I wish Apple luck. I have ownerd every model iPhone ever made yet have no interest at all in the watch. Hopefully I am not the norm.

    This is me as well. 

     

    I also question what is deemed 'successful'. Certainly sales compared to Android wear devices is one metric, but probably not accurate of the general acceptance. 

     

    Beyond Apple fans and early adopters, I don't see the need of another device that simply is a greater convenience.

    I can see the Apple watch being a niche product but not ever taking off in record numbers like the iPhone. Even beyond generations 2 or 3. 

  • Reply 15 of 53

    Another perspective

     

     

    And remember you need both - so between your pocket and your wrist you have close to a $1,000 dollars - and both tell the time equally well.

  • Reply 16 of 53
    brucemcbrucemc Posts: 1,499member
    Quote:

    Originally Posted by herbapou View Post





    Omg, 5 years really... Imo the Android watches will catch up within 1 year.

    Depends what you mean by catch up.  I am sure that Android Wear and its OEMs will do a lot of work to make it "look like" the ?Watch, but in terms of experience I don't believe they will catch up.  They won't have the fit & finish of the Apple Watch either.

  • Reply 17 of 53
    slurpyslurpy Posts: 5,087member
    Quote:
    Originally Posted by sog35 View Post

     

     

    good time to buy shares IMO.

     

    just bought 240 shares at $125

     

    Take advantage of the manipulation my friend.


     

    Good for you. I just bought $5K worth @ $124.50. 

    Small amt compared to you, but I haven't sold a single share since my initial purchases. Yes, this def looks like manipulation. Everything from the keynote gave me optimism about the future. New Macbook makes everything else out there look like shit, and the Watch will be something that not only is a growing profit center, but will attract more affluent people to both Apple stores, and Apple products. Just like previous Apple products, anaysts/wallstreet don't understand it, and how it ties into the whole Apple ecosystem, experience,and product line. 

  • Reply 18 of 53
    fallenjtfallenjt Posts: 3,961member
    Quote:

    Originally Posted by jd_in_sb View Post



    I wish Apple luck. I have ownerd every model iPhone ever made yet have no interest at all in the watch. Hopefully I am not the norm.

    Same here, at least at this price.

  • Reply 19 of 53
    SpamSandwichSpamSandwich Posts: 30,571member
    sog35 wrote: »
    good time to buy shares IMO.

    just bought 240 shares at $125

    Take advantage of the manipulation my friend.

    Might dip closer to $120 before this selloff is over. What a country!
  • Reply 20 of 53
    brucemcbrucemc Posts: 1,499member

    The one area where I believe the analysts are being very conservative is in the margins.  I expect they will be over 50% when blended across all models and bands sold individually (at least after the yields pick up).

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