“We struggle to see a catalyst for the stock.” — Analyst Toni Sacconaghi
From a note to clients that landed on my desktop Tuesday:
Phone ASPs increased an estimated $170 YoY (or 24%) to $880+ in FY Q2, the highest level since iPhone launched in 2008. By contrast, estimated iPhone unit sales were modestly below our forecast.
What is driving strength in iPhone ASPs? We believe it is largely a mix shift to Pro/ProMax models; moreover, our analysis suggests that this mix shift was the principal driver (~50%) of Apple’s stunning 575 bps of YoY improvement in product GMs in Q2. We estimate that the mix of Pro/Pro Max models in Q2 may have been 2000 bps higher than a year ago. Moreover, our analysis suggests that margins are 1000 bps+ higher than non-Pro Models, largely due to richer attach rates of storage/NAND, which generates up to 90% incremental gross margin. We believe that average NAND upsell/attach could be $150 higher on Pro/Pro Max models vs. Mini/iPhone 12.
So, what will happen to iPhone ASPs going forward? On one hand, financing/trade-in plans could make iPhones appear more affordable and continue to support strong ASPs over time… on the other hand, ASPs this year are likely benefitting from wallet share shifts amid the pandemic and high upgrade rates among Apple’s most affluent customers in China/Asia looking to move to 5G, both of which may not repeat next year…
While Apple’s multiple has come down considerably since the beginning of the year, the stock still trades at ~23.5x our FY 22 estimates, and Apple will be staring down very difficult comps in essentially every business in FY22 & next year’s iPhone 13 cycle is likely to be evolutionary/ more muted. We struggle to see a catalyst for the stock.
Maintains Market Perform rating and $132 price target.
My take: For Sacconaghi, it’s all about the iPhone.