Apple WWDC ’16: What the analysts are saying

Excerpts from the notes we’ve seen. More as they come in.

Sherri Scribner, Deutsche Bank: Our view. The event was largely in line with expectations, and represented further tweaks to Apple’s four platforms as opposed to evolutionary changes. Incremental, in our view, was the focus on machine learning capabilities, an area Apple has not highly emphasized in the past, but clearly a focus for the industry going forward. Redesigns of Apple Music and the WatchOS were expected, and necessary, in our view given lukewarm reviews. Overall, we felt the event provided some interesting new features, but we did not feel anything announced was incremental enough to impact the stock. Rating: Hold. Price target: Industry low $105. 

Walt Mossberg, The Verge: Apple Watch gets a rescue. Arguably Apple’s least successful core hardware product in decades, the Apple Watch could have been nursed along, like a terminal patient. Instead, Apple announced a massively improved new operating system for it that amounts to nothing less than a complete reboot for the device. You can read a full analysis of it here. The redesign speeds up app launching dramatically, even on current Watch hardware; eliminates tedious extra steps; and revamps almost the entire user experience. This is even more proof that Apple’s software is all about selling hardware.

Simona Jankowski, Goldman Sachs:  Spotlight on Siri, Apple Pay and Apple TV. As expected, Siri arrived on macOS and opened up to 3rd party apps (e.g. so you can now summon Uber with Siri). This helps Apple catch up to the capability of Amazon’s Echo, though Apple still has certain advantages such as Siri being multi-lingual. Second, Apple Pay is now available on Macs, with authentication enabled by Touch ID on the iPhone. This puts Apple in more direct competition vs. PayPal and uniquely leverages its platform advantage, though it also limits the user base to Mac and iPhone owners. Third, Apple TV now offers Sling TV, which is a bundle of 27 channels for $20/month offered by Dish. In addition, Apple enabled single sign-on on Apple TV, rather than requiring the user to authenticate separately for each app/channel (HBO Go, ESPN, CBS, etc.). Buy. $124.

Wamsi Mohan, Merrill Lynch: We rate Apple a Buy on potential upside from 1) Continued long-term opportunity in China, 2) potential share gains from the release of a lowerend iPhones, 3) strength in the upcoming iPhone 7 cycle, 4) optionality in cash balance. Risks are: 1) Upcoming deceleration in iPhones after a strong product cycle 2) development of new revenue sources like Apple Pay, Apple Watch, home/health kit, etc., that will take time to mature. Buy. $120.

Cheryl Rowan, Merrill Lynch: We are also adding to our current position in Apple, as the pullback in price gives us an opportunity to lower our cost basis on shares of this industry leader. Apple’s app store changes have the potential to drive more predictable revenue growth, in our view. Apple is making Siri a larger part of the ecosystem. It will now run on Macs, and can help users open Apps, search the web and send text messages. In iOS 10, Apple has made Siri open to developers for integration into 3rd party Apps. Artificial Intelligence/deep learning is being used to make Apps smarter and more useful (sorting photos by themes, suggesting alternate routes during trips, places to eat and controlling home devices). Buy. $120.

Kulbinder Garcha, Credit Suisse: Factoring in a muted 7 and the 8 super cycle. As details emerge earlier than usual, we now factor in the impact of the iPhone 7 and iPhone 8 (rather than being called the 7s). We conclude that the iPhone 7 will prove to be a modest upgrade, with significant innovations pushed out to the iPhone 8. While this does not change our view of the long term EPS power of the business, we cut our 2016 EPS estimate by less than 1% (to $7.80 per share) and our 2017 estimate by 5% (to $9.67 per share), and introduce our 2018 EPS estimate of $12.32. Given high retention rates, a superior ecosystem, a multi-product compute advantage and a growing services business, we believe free cash flow of approximately $67 billion should be sustainable long term. Outperform. $150.

Brian White, Drexel Hamilton: Via BarronsIn our view, Apple’s expansive digital matrix across software, services and hardware, that delivers a seamless experience to an installed base of 1 billion devices, will continue to differentiate Apple from its mobile device competitors. We find it virtually impossible for Android-based competitors to ever create a digital matrix that rivals “Planet Apple”. Buy. $185.

Toni Sacconaghi, Bernstein: Via Barrons. Apple appeared to take every opportunity it could to mention China (we counted at least 6 China “shout outs”, some seemingly gratuitous) and demonstrated Chinese language capabilities of new operating systems or used Chinese apps (e.g., Didi and Dianping) as exemplars, highlighting the importance of that market as well as Apple’s likely desire to constructively appeal to consumers and authorities. Outperform. $135.

Ben Bajarin, TechpinionsMore Power to Developers. From a developer standpoint, Apple came out swinging and made sure it was clear Apple platforms are the best place for developers to invest their time and resources. Apple made it clear they have four platforms for developers to think about, each one with a different focal point. iOS, WatchOS, tvOS and macOS make up the pillars for developers. Apple has begun opening up more of each platform and allowing developers added ways to take advantage of each.

Ben Thompson, Stratechery: Microsoft and Apple Double Down. It has been years since Microsoft upstaged an Apple Keynote (such things usually run in the opposite direction), but that is exactly what happened yesterday with the former’s $26.2 billion purchase of LinkedIn overshadowing Apple’s impressive yet iterative announcements at their annual Worldwide Developer’s Conference (WWDC). And yet, despite the contrast in expectations (zero versus high) and reactions (“What?!?” versus “Makes Sense”) there is a certain symmetry to the news: both are doubling down on their strategies, and it’s a debate which is taking the most risk by doing so.

Gene Munster, Piper Jaffray: Apple Announces Siri, Messaging Open To Developers; Apple Pay In-Browser. As we previewed, the event was largely incremental and a warm-up for new products in the fall. We believe the updates keep Apple’s hardware and software ahead of competition from Android, Amazon and Windows. The two biggest announcements were opening up Siri and Messaging to iOS developers and adding Apple Pay to the browser (Mac and iOS). We also note that Apple talked more about early artificial intelligence efforts, primarily in messaging, although we believe competitors are further ahead with more advanced messaging platforms like chatbots. We remain positive on shares on our belief that the iPhone 7 cycle will enable a return to unit and revenue growth even if the cycle is flat from iPhone 6, with the easiest comps in Mar-17 and Jun-17. Overweight. $153. 

Katy Huberty, Morgan Stanley: Apple Hints at AI and TV Ambitions. Apple announced software features that hint at future opportunities (machine learning, home automation, live TV) and catch-up to competing platforms (messaging, Siri). Opening Siri, Maps, and Messages to developers and extending Apple Pay to the web are most impactful near-term, in our view; iOS gained new features around machine learning and home automation; Apple TV becomes more powerful with Siri and the company may be another step closer to live TV; Watch has a completely revamped user experience, which should help adoption; macOS gets even closer to feature parity with iOS. Overweight. $120. 

Timothy Arcuri, Cowan: New Software Deepens and Broadens Ecosystem. With the introduction of new versions for all four of its operating systems, WWDC highlighted even more seamless integration across AAPL devices/platforms to further bolster the allure/stickiness of the ecosystem. New Apple Pay support for online purchases taps into ~$1.3T mobile/online TAM; while an important evolution, the math is far more interesting if it drives new HARDWARE sales. Outperform. $125.

Steven Milunovich, UBS: Four-Platform Palooza as Apple Embraces Developers. “For the first time, we’re going to talk to you about four Apple platforms.”—Tim Cook. We recently asked if Apple gets platforms. Apparently it does based on the litany of technologies being opened up to developers, including Siri, Maps, and Messages. We consider the operating systems to be the primary platforms (Cook pointed to four: iOS, macOS, tvOS, and watchOS) with Apple Pay, Apple Music, and the App Store transaction platforms. Providing APIs allows developers to write applications to Apple’s operating systems, enhancing the platform by leveraging innovation outside the company and bolstering the network effects that make platforms so powerful. Ever since Jobs supported the App Store, Apple has been better balancing vertical product integration with more open horizontal platforms. Buy. $115. 

Aaron Rakers, Stifel: Further Opening of iOS to Developers, Enhancements to Messages App, Apple Pay Expansion & More. While the event offered little surprises, we believe most notable was the company’s opening up of its Maps, Siri, Phone, and Messages apps / functionality to developers – allowing for further enhancement / innovation as we continue to focus on Apple’s ability to further monetize its iPhone installed base expansion (>625M). Buy. $120.

Amit Daryanani, RBC: No product refresh. While there were some expectations around potential Macbook Pro and Apple Watch refreshes, we do not view the missing product refresh as a negative given WWDC is a developer/software event. Overall, we think the software updates, together with changes to the App Store announced last week, are targeted to make users more “sticky” to the Apple ecosystem (improving the service revenue stream). Outperform. $120.

Tim Long, BMO: Strengthening the Ecosystem. While none of the individual announcements are revolutionary, we view the total impact of the many updates, all of which will be available in the fall, to the four product platforms as a positive step in further strengthening the Apple ecosystem. Outperform. $118. 

Sherri Scribner, Deutsche Bank: Reiterating rating. Hold. $1o5.

Andrew Uerkwitz, Oppenheimer: Reiterating rating. Outperform. $120.

Laura Martin, Needham: Reiterating rating. Strong buy. $150.

7 Comments

Leave a Reply