Apple shows nice new Macbook & a very profitable Watch
Today Apple hosted an event in San Francisco which provided more details on Apple
Watch (shipping on April 24th), a major update to the Macbook (and other
notebooks) and a few other things like HBO streaming launch exclusivity on Apple
TV and ResearchKit. We believe use cases for the Apple Watch are getting more
compelling with unique apps now coming soon from many including those from
Instagram and Twitter. We also see strong potential for the watch to augment Apple
Pay and to be used by frequent travellers (i.e. Watch as a keycard/ boarding pass).
One key disclosure was the relatively high ASPs for the Watch, which could even
help expand gross margins long-term (considering potential margins for the Apple
Watch and Apple Watch Edition SKUs and the band accessories).
We estimate 2 million Watch units sold in the June quarter with a blended ASP of
$425. For all of FY15, we estimate Apple Watch units of 7.5 million. We see a stronger
ramp next year to 31.6 million units (+321% y/y growth) based on a blended ASP of
$429, which could prove conservative after the pricing details we heard today. In fact
we could argue that the ASP of the Watch may be closer to $600, which could add
about 30 cents to CY15 EPS.
With “Spring Forward” now behind the company, we believe the next potential
catalysts for Apple in April include iPhone sales upside, a renewed and larger capital
return program and a strong launch for the watch. We still wouldn’t be surprised to see
shares move steadily closer to our target of $150 by year-end and reiterate our OW
rating - supported by strong free cash flow and our view that Apple is one of the few
companies in our space that can successfully navigate a strong dollar.