Apple’s Time Flies: What the analysts are saying

Excerpts from the notes I’ve seen. New notes up top, as they come in.

Toni Sacconaghi, Bernstein: Our 4 Key take-aways from yesterday’s Watch and iPad announcements. 1. We are encouraged by the incremental health functionality and focus in the watch Series 6… 2. Apple continues to push the envelope on performance with the iPad, and raise prices, as evidenced by the iPad Air 4…. 3. We found the AppleOne Services announcement yesterday to be relatively underwhelming…  4. While its end market is highly competitive, Apple’s newly introduced Fitness+ service likely provides Apple with an additional, fixed cost services offering (beyond AppleTV+) that can be bundled with other Apple products and services with essentially zero incremental cost… Investment Implications: While Apple’s valuation appears increasingly full, we believe the stock is remains more or less “de-risked” on a near-term basis, as it has historically fared well in advance of new iPhone launches, and FY21 estimates still appear beatable. Market-Perform. $100. 

Katy Huberty, Morgan Stanley: Expanding the Watch and Services TAM. Apple’s launch event (part 1) was largely as expected but we’d highlight 1) Fitness+ and Apple One put upward pressure on our Services revenue forecasts, 2) Watch SE and Family Setup expand the Watch addressable market and 3) the added Blood Oxygen feature in Watch Series 6 should drive upgrades… When combined with the iPhone SE and iPad Pro launches last spring and the expected October iPhone 12 launch, 2020 will represent Apple’s most broad-based update of the ecosystem in the company’s history. Importantly, these product cycles come at a time that iPhone replacement cycles are stretched beyond 4 years and share gains in Europe and China appear sustainable for at least the next several quarters. As a result, we are buyers of AAPL shares on the back of expected positive earnings revisions through FY21. Overweight. $130.

Andrew Uerkwitz, Oppenheimer: Apple Announces New Watches, Service Bundle, and iPads. Hardware updates are typical of Apple, with new features and a new generation of A-series SoCs that offer better performance and power efficiency. However, it is increasingly clear that with in-house silicon refreshed at each cutting edge node, Apple is able to widen the performance and value gaps between itself and competing products. We find Apple One bundles less compelling for now but see value increasing as Apple bolsters existing services and adds new ones. Outperform. $125.

Laura Martin, Needham: Bundled Services Drive AAPL Upside. Its new Watch and iPads were AAPL’s focus yesterday, but we raise our PT and estimates on bundled services and Apple Silicon. We believe Wall Street often underestimates the value of APPL’s clever marketing decisions, like the Apple One mega-bundle… Price bundling typically offers services at a lower price than if purchased individually. For example, the Apple One Premier plan is $25/month cheaper than buying each service individually. SPOT is calling on regulators to stop the Apple One bundle roll-out because bundling has such powerful lock-in economics. In every new device, Apple Silicon drives more differentiated attributes, which improves on-ramps into AAPL’s ecosystem and elevates its pricing power. Buy. Target to $140 from $112.50.

Rod Hall, Goldman Sachs: Apple One bundles and Fitness+ launched, Watch SE confirmed. For our part we are not surprised Apple has chosen to offer users substantial value with these bundles because 1) penetration of the installed based with Apple Services probably remains low and 2) additional TV+ subscribers help to control amortization of high content costs as we have previously pointed out. While Fitness+ was not a completely new idea we were surprised to see Apple rolling it out this year and timing is good given increased interest in home fitness options. On the hardware front things were more or less as we had expected with confirmation of a less expensive Apple Watch SE the biggest news from our point of view. Sell. $80.

Samik Chatterjee, J.P. Morgan: Democratization of Fitness and Connectivity with Watch and iPad Launch Event. While Apple did not announce the new iPhone lineup, we came out largely positive from the event led by: 1) compelling pricing and feature-set for Apple Watch Series 6, and the addition of the Family Setup option as well as the launch of Watch SE allowing Apple to address an even wider demographic (e.g. kids); 2)launch of an on-demand video based fitness service as digital fitness gains prominence in a COVID-19 environment; and 3) bundling of “successful” Services in the form of Apple Music and iCloud with nascent ones at compelling price points to drive a much larger Services TAM [total addressable market]. Overweight. $150.

Gene Munster, Loup Ventures: ‘Time Flies’ Event Highlights Apple’s Upsell Mastery. While the new Apple Watch Series 6 will top the headlines, we see Apple’s ability to segment product lines and motivate consumers to reach for higher-priced products as a key takeaway and a sustainable competitive advantage for the company… We believe the biggest news of the day was the $100 price increase on the new iPad Air, from $499 to $599. We view this as evidence that Apple continues to experience a spike in iPad demand, and that the company is confident that a 20% price increase won’t slow it down.

Harsh V. Kumar, Piper Sandler:  Special Event Showcases New Watches, iPads, and Services. Overall, we are extremely impressed with the new lineup, particularly related to the Watch and the services. Specifically, we see each of these items addressing an individual’s “new normal” following the coronavirus pandemic. As the world continuously evolves, Apple remains at the forefront for new product and technology innovation. Overweight. Target to $130 from $113.

Amit Daryanani, Evercore: New Watch & iPad + Apple Applies Some Pressure in the Music Streaming War. We think the Apple One bundle may be the most important announcement at today’s event. Apple unveiled changes to watch and iPad lineups in addition to announcing a new service (Fitness+) and new options for bundling services. The Watch Series 6 will include blood oxygen monitoring, further expanding health capabilities. The Watch lineup now includes a lower price “SE” option ($279), which will make the platform more accessible as Apple begins to build services around the Watch. Apple announced the first of the Watch-focused services “Fitness+”, which is compelling at $9.99/month (Peleton subscription costs $39/month). Net/net: Introducing lower price points for the Watch should help build the ecosystem and Fitness+ is the first move to directly monetize that ecosystem. Bundling also looks compelling and should help Music take share from peers. Outperform. $130.

Daniel Ives, Wedbush: New Watch, Services Bundle, and iPad Unveiled; The Drumroll into iPhone 12. While the focus for the Street remains the iPhone 12 5G supercycle set to kick off in early October, the launch of the next generation Apple Watch, iPad Air, and services bundle are key ingredients in Cupertino’s recipe for success heading into FY21 and beyond. With our estimates that roughly 10% of iPhone customers have an Apple Watch today, we believe that based on the current upgrade trajectory that roughly 25% of customers could be penetrated on this wearables front over the next three years. For the services bundle, we view that as a smart strategic move to further monetize its golden installed base with potential to increase the core services segment by an incremental 5%-7% annually with this latest endeavor. Outperform. $150. 

Aaron Rakers, Wells Fargo: From TheFly. Wells Fargo analyst Aaron Rakers said following Apple’s introductions of its new iPad Air, Watch 6, Watch SE, Fitness+ subscription service and Apple One bundles that the company’s unveiling event “positively highlighted Apple’s innovation and deepening subscription services push.” At the event, Apple showed off the Watch Series 6 health monitoring and notification capabilities as well as its own work with health care providers and insurance companies, noted Rakers. Overweight. Target to $140 from $121.

7 Comments

  1. Jerry Doyle said:
    Has anyone grasp fully that Apple just created today a formidable new service subscription in health & wellness and how that new service subscription in a COVID-19 era is going to obtain legs? Amazing! I never saw this coming. A whole new revenue stream, and if I may say, a pretty darn good one.

    5
    September 15, 2020
    • katherine anderson said:
      You’re right, I don’t think anyone saw this coming.

      Fitness+ is going to be huge. Remember Jane Fonda’s Workout in the 1980’s. Her exercise videos created the fitness craze that followed, making her the first superstar fitness mogul.

      I believe the next generation of fitness superstars will come from Apple. I’m searching for the gorgeous group portrait of the two dozen or so fitness instructors that Apple flashed across the screen today during the launch event. It’s a portrait ready-made for Vanity Fair magazine.

      3
      September 15, 2020
  2. Fred Stein said:
    Massive. The Pixelmator ML assisted image enhancement provides a metaphor for Tim’s long term vision coming into sharp focus. That alone leaves all tablets ‘eating dust’.

    Next, the metaphor.

    3
    September 15, 2020
  3. Fred Stein said:
    The metaphor: Apple’s vision, iOS/S-series everywhere, more that a decade in the making, becomes so much clearer. It’s a fabric, a magic carpet.

    1) Other SmartPhones, tablets and smartwatches can’t compete. Microsoft’s Surface duo, an Android/Window chimera, provides comic relief.

    2) The bundled Apps and SDKs ride on this magic carpet. They’re joined by Apple’s services, third party Apps and services, and 23 million developers on board too.

    3) Tim made bold promises about Services revenue and Apple in health. Services? Done. Health? just starting.

    The nerdy sidebars about the chip provide a glimpse of Apple’s lead.

    6
    September 15, 2020
  4. Gregg Thurman said:
    Three PT upgrades and Rod Hall says Sell. Enough said, except maybe: “Stupid is as Stupid does”.

    0
    September 16, 2020
  5. David Drinkwater said:
    I don’t think the analysts or the market are accounting for the significance of an Apple Watch SE at $279, although, admittedly, without the Cellular capability ($329 minimum) it’s slightly weakened. Still, a new this year Apple Watch for $329 is a pretty good entry point (“come into my web …”).

    Similarly, the 8th Generation iPad, new this year (serviceable into a fairly long foreseeable future), at $329 ($459 with cellular) is *another* excellent entry device. (And it adds value to my first generation Apple Pencil – except for the fact that it is battery dead and dusted.)

    I think the new iPad Air is pretty nice, too, but I am holding out till the next round of Pro announcements to make my next iPad decision.

    Although the home iPad (2016 iPad Pro 9.7″) is getting a little sluggish, the iPad Air 2 that sleeps at the office feels amazingly sluggish doing updates nowadays. (I have to say, though, it still feels amazingly light, especially for lack of a keyboard cover!) Even SIX YEARS later, that old iPad still gets full-on software updates.

    I think the analysts and the market are underestimating this ….

    0
    September 17, 2020

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