"Apple Car revenue could, over the long term, be greater than all of its other businesses combined."
From a note to Loup Ventures subscribers that landed on my desktop Friday.
Munster's five bullet points:
- A car is in Apple’s wheelhouse. Cars will become a computer on wheels – a collection of hardware, software, and services. The nexus of these three elements is what Apple excels at. I think of cars as big tech devices that will have services sold around the hardware. The software will hold it together. This model has supported a 25-30% operating margin, in line with Apple’s current margin structure.
- Just like other Apple devices, Apple would design the car and a third party would build it.
- The revenue impact to the business would be material given the total addressable market for auto is massive. For example, if you assume Apple can capture 10% of the auto market, (they have just under 20% of the phone market today), by selling a $60k car, it equates to $540B in annual revenue. That compares to Apple’s FY22 expected total revenue of $380B.
- In other words, Apple Car revenue could, over the long term, be greater than all of its other businesses combined.
- I caution it’s too early to price in the potential given we don’t know if the car will see the light of day, and even if it does, it’s five-plus years away. That said, the impact on Apple’s valuation could be staggering. Shares of Apple currently trade at 6.8x next year’s revenue forecast. If Apple captures 10% of the global auto market, and investors value auto revenue similar to how they value Apple’s current revenue, the car would add $3T to Apple’s current $2.6T market cap. On the other hand, if Apple captures 1% of the car market, it would add about $300B to the company’s valuation. Using this framework implies the market is now expecting Apple to eventually capture about 0.3% of the global car market.
My take: Several analysts have weigh in with seriously bullish notes. None have changed their Apple estimates or price targets. Makes you wonder how serious they really are,