Biggest surprise: The strength of demand for the new Apple Watch.
From a note to clients by Katy Huberty that landed in my inbox Wednesday:
We raise our FY18 Apple Revenue and EPS estimates 2% and PT to $199 (from $194) on the back of AlphaWise survey of US smartphone users highlighting 1) pent-up iPhone upgrade demand, 2) increased retention/switcher rates, and 3) surprisingly bullish Apple Watch demand.
Zeroing in on the Apple Watch demand:
Apple Watch demand the biggest positive surprise – potentially doubling revenue by 2019. While iPhone contributes the majority of revenue and profits, Apple Watch is growing in importance, potentially doubling revenue contribution to Apple top-line in the next two years. Twenty-one percent of US survey respondents and 29% of US iPhone owners plan to purchase an Apple Watch in the next year. Additionally, over two-thirds expect to purchase the Watch with cellular functionality, putting upward pressure on ASPs. While we recognize that the consideration to purchase an Apple Watch does not necessarily translate to a purchase we see an upward bias to Street Apple Watch forecasts and raise our FY18 shipments to 30M, from 25M, noting the potential for more than 10M upside even on this higher base.
Below: How Morgan Stanley got to 262 million iPhones and 30 million Apple Watches for fiscal 2018.
Click to enlarge.
Huberty maintains her Overweight rating and, as noted, raises her price target to $199 from $194.