Apple's iWatch and Apple TV initiatives could drive an additional $80 billion in yearly revenue
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.
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.
"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.
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.
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.
"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.
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.
Comments
Well Street, please shut up.
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?
Quote:
Originally Posted by Rogifan
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.
Quote:
Originally Posted by antkm1
...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.
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.
Amen to that!
Quote:
Originally Posted by SolipsismX
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!
Quote:
Originally Posted by SolipsismX
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
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.
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.
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.
Quote:
Originally Posted by jragosta
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....
Quote:
Originally Posted by island hermit
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.....
Quote:
Originally Posted by geekdad
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.
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.