Wedbush: AirPods are flying off the shelves — update

From a note to clients by analyst Daniel Ives that landed on my desktop Wednesday:

As we head into Black Friday and the start of holiday shopping season into year- end we are seeing a surge of consumer demand for Apple’s new AirPods Pro with potential shortages heading into Christmas timeframe. We estimate that Apple is on pace to sell over 65 million AirPods units in 2019 and is now on a trajectory to potentially reach 85 million/90 million units in 2020. Attach rates for existing iPhone customers remain extremely high around the new AirPods Pro with our estimates that Cupertino will sell roughly 15 million AirPods during the course of the next month with this product on pace to be a clear star of Black Friday and holiday season.

While AirPods today are on a trajectory to represent ~4%+ of overall revenues, this product category continues to speak to the unparalleled flywheel that Cook and Cupertino have with 900 million+ iPhones worldwide under its belt and 1.4 billion+ active devices to tap into worldwide and thus further monetize through products/services as we continue to see with the Apple Watch as well.

In our visits to a number of Apple stores this week, customers continue to highlight the superior noise cancelling technology, innovative design, and rubber earbuds around this latest AirPods Pro which retails for $249. We also expect price cuts on the older AirPods versions at various retail locations starting on Black Friday and especially on Amazon as we saw price points on AirPods 2 this afternoon were cut down to $134 (vs. the original $159 retail price) and will likely be lower on Friday morning. While there are various shortages for AirPods Pro for the holiday season, production appears to be ramping steadily in anticipation of this dynamic and we expect Apple to fill nearly all of the orders as the shipping deadlines approach over the coming weeks. In terms of other Apple products, we continue to believe iPhone 11/iPhone 11 Pro is tracking ahead of expectations this quarter thus far with a strong surge of demand into holiday season expected that should be a nice boost for the company’s FY1Q/December results and put more fuel in the stock as we head into the “5G super-cycle” in 2020.

Maintains Outperform rating and (Street-high) $325 price target.

My take: Ives, as usual, likes what he sees.

UPDATE: On Friday, Ives issued a note that is, nearly word for word, the same as the one he issued two days earlier. The opening:

Based on Apple store checks, inventory levels/shortages at a number of retailers, and reduced prices for AirPods 2, we believe Cupertino could potentially sell 3 million+ of these units over Black Friday/Cyber Monday. To this point, we are seeing a surge of consumer demand for the new AirPods Pro with potential shortages a lingering worry heading into Christmas timeframe. We estimate that Apple is on pace to sell over 65 million AirPods units in 2019 and is now on a trajectory to potentially reach 85 million/90 million units in 2020. Attach rates for existing iPhone customers remain extremely high around the new AirPods Pro with our estimates that Cupertino will sell roughly 15 million+ AirPods globally during the course of the next month with this product on pace to be a clear star of Black Friday and holiday season…

11 Comments

  1. Gregg Thurman said:
    FQ1/2020 Revenue $90.733 Billion. Any estimate below $90 Billion should be ignored.

    2
    November 27, 2019
  2. Jerry W Doyle said:
    “…. Maintains Outperform rating and (Street-high) $325 price target.”

    There is nothing new here that already has not been denoted by many on this blog. We learned a couple of weeks past (as I denoted on this blog) that the AirPods were selling in China like popcorn. I also denoted through my own contacts that I was pleasantly surprised at how many folk who already have AirPods are upgrading to the AirPods Pro! It’s not just AirPods selling like steaming pancakes being grabbed at 5:00 am before heading out to the slopes, but it’s the iPhone 11, and other Apple devices with an obvious warm welcoming of Apple Services and new Apple Services being rolled out for public consumption.

    Today I purchased a new iPhone 11 and Apple Watch for my daughter, who previously was a devoted Android user. She now is in the iOS family. We spent the afternoon setting the two new devices up for her to experience.

    I read a few moments ago a serious meme is circulating on Twitter and elsewhere purporting that Apple’s AirPods, if spun-off as a separate company, would be valued at $175B. That’s at the lofty levels of real companies like Oracle, Adobe and Cisco! The article in Fortune magazine believes the boast is not crazy, that Apple’s wearables unit will haul in $20B in sales in 2020 with a gross profit margin around 35%.

    Well, I am one who has been saying that we will see a $300 share price early next year and we have the real capacity of what is coming forth (new devices and Services) in 2020 and on into 2021 to see a $400 price target by early 2022.

    Run all the numbers you want but the obvious is right there before your eyes. It doesn’t take a rocket scientist to figure where Apple stock price is heading in the next two years!

    Laissez le bon temps rouler! Laissez le bon temps rouler!
    Geaux ! Geaux ! And Geaux LSU Tigres!

    3
    November 27, 2019
  3. Gregg Thurman said:
    It doesn’t take a rocket scientist to figure where Apple stock price is heading in the next two years!

    Even being just moderately successful trading AAPL’s options I expect to do very well over the next couple three years.

    0
    November 27, 2019
  4. Turley Muller said:
    I see Mr Ives read the Bloomberg article.

    0
    November 28, 2019
  5. Kirk DeBernardi said:
    Please forgive me, I’ve mentioned this before on Apple 3.0 but it’s worth repeating.

    They’re not just headphones.

    AirPods complete what I call the Apple triumvirate: iPhone – WATCH – AirPods. A constant assistive presence in your life. Each sublimely completing a circle of life utility.

    No other company offers anything close to this tight of a satisfying integration of products.

    As more and more people complete this triumvirate circle and Apple iterates on this even further, I believe it will become a unique unassailable force for them going forward.

    (…and don’t even get me started on the inclusion of a HomePod.)

    1
    November 28, 2019
    • Fred Stein said:
      Well said, thanks. Yes, Apple is in a league of its own in this sublimely ‘virtuous’ circle. Plus in both wearable categories, they’ve lapped the competition. Both watches and earbud have no serious competitors. Samsung and Huawei because of their scale and their chip making abilities can stay in the business. The rest will fall into niches or oblivion.

      0
      November 28, 2019
  6. Gianfranco Pedron said:
    “ Wedbush: AirPods are flying off the shelves”

    OMG! I hope nobody gets hurt.

    Happy Thanksgiving.

    1
    November 28, 2019
  7. Fred Stein said:
    Actually Wedbush has spoken with “people in a position to know” that the flying AirPods will be announced WWDC in June. Somehow a few prototypes were released prematurely.

    0
    November 28, 2019
  8. Kirk DeBernardi said:
    Maybe the fact that a $250 item that “flies off the shelf” supports my theory of a desire to complete this triumvirate.

    ; – )

    BTW — If you really want to get a more complete, more accurate and fuller sound experience with music from the AirPods Pro, turn on “Treble Boost” in the equalizer settings under Music:

    Settings >
    Music >
    EQ >
    Treble Boost

    Apple has changed the sound signature of the AirPods Pro from the original sound of AirPods/EarPods.

    IMHO the midrange is noticeably more full and the upper high-end has been pushed down towards the mids. Turning on the Treble Boost helps correct this and is just subtle enough — as are all the built-in EQ settings — to not interfere with the overall balance of sound — the AirPods Pro “claim to fame”.

    Also critical — the tips seal of the ear.

    Try this, you might discover things you hadn’t heard before.

    (The EQ settings are only applied to Music — nothing else.)

    2
    November 28, 2019
  9. Kirk DeBernardi said:
    One last mention —

    Inherent in turning on any of the EQ settings is a knock down of the volume a peg.

    0
    November 28, 2019

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