Plus: Analyst Katy Huberty’s most recent bull- and bear-base estimates for Apple in 2020.
From a note to clients that landed on my desktop Friday:
While sentiment has improved after the strong F3Q print and guide, we still feel the majority of investors are on the sidelines with low expectations into next week’s event and the upcoming iPhone cycle. We continue to favor AAPL into year-end in light of the fact that
1) iPhone expectations are low despite the replacement cycle already extending to 4 years, in-line with PCs,
2) Services Y/Y compares are improving with quarter to date App Store revenue up 22% Y/Y (vs. our +18% forecast and +17% Y/Y growth in C1H19; 1) and new services including Apple Card and TV+ will begin to impact the model over the next six months, helping further re-accelerate growth, and
3) Apple’s P/E multiple typically expands 12 months ahead of a major iPhone cycle which we expect with the launch of 5G iPhone(s) in September 2020.
According to Huberty, the key questions going into Apple’s Sept. 10 event are…
- Apple’s iPhone pricing strategy relative to past cycles ahead of an expected 5G upgrade cycle next year and given the international price rollbacks announced earlier this year and the expectation for new tariffs on smartphones exported from China to the US (to be implemented on December 15th).
- Timing of availability for the new iPhones given the scaled roll-out over the last two years which could influence Y/Y and Q/Q growth rates in the December 2019 quarter
- Details on Apple’s yet-to-be-launched Services Apple TV+ and Apple Arcade. Recent news articles… have disclosed expected pricing for each service ($9.99/month for Apple TV+ and $4.99/month for Apple Arcade) but the exact launch dates and details of free trials remain unknown, as do the content offerings at launch, which will be important data points to help model early adoption and revenue recognition.
Maintains Overweight rating and $247 price target.
My take: Readers have been asking for Huberty’s bull- and bear-case estimates. Most recently, from a July 31 note:
That’s quite a spread. The bear case assumes “full potential of tariff and regulatory risks,” including a crackdown on the App Store that cuts Apple’s take in half.