"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,
Retail investors have driven up stock prices of Rivian Automotive, Lucid, Tesla, Fisker, Inc., Volcon, Inc., XPeng, along with some legacy car companies moving into the EV space such as Ford, GM, on inherent future growth. It is difficult for me to believe that the same enthusiasm for investing in these companies driving up their respective stock prices isn’t aligned similarly with Apple resulting in higher share price value in the coming weeks and months. If investors begin to believe that Apple can do to the EV market what Apple did to the smartphone market, then we could see a disproportionate investor effect on the Apple stock price going forward as we have see with Tesla’s prospects for future marketable growth.
In summary, I would not be shocked if Apple stock price in the coming weeks and months begins to lift-off with an influx of new money rushing in to be ahead of the groundswell of new potential growth little different than individual regret of not being early to arrive as a Tesla investor.
A car would add couple more $Ts, when and if…..
Expect more rumors to juice the stock price for quite some time.
It’s just zeros.
Health is $16T globally. One tiny niche, clinical trials, is $80B, and stuck in fax, snail mail, physical presence, resulting in high patient drop out which hurts ROI for big pharma, who pass the cost to us.
AR? “Apple/AR-as-a-service” means the whole of Apple is the platform for creation and consumption of AR in our real world experiences. VR is the antithesis of Apple in that it imposes the technology on the UX.
That’s what I’d noticed and thought it odd that even Dan Ives or Katy Huberty didn’t even offer speculative Bull cases. I guess it’s still too early in this saga for them to go out on a limb.
There’s an opportunity here to define a long-term target price, LTP, meant to encompass the opportunities a company has over the next 10 years. Cathie Wood is already doing this with Tesla and other companies in her portfolio, as are others. It would be nice to formally inaugurate the term, and perhaps modify the current term covering expectations for no more than a year out as short-term target price, STP.
This begs the question, what are these analysts’ LTPs?
The intriguing thought your excellent post brings to mind is the potential for Apple’s valuation to go up BEFORE the handwriting is indelibly on the wall.
If you buy into Apple now, will you be better off than someone who waits for the handwriting to be crystal clear? Let’s say Apple goes up 100% in the meantime. If you can confidently expect to net more than the 100% price increase with other investments, and it doesn’t go up more than that before you finally decide to buy in, then waiting may make sense.
But I’d submit that Apple is not standing still, and it’s not likely that such a “gamble” will pay off. If in fact this isn’t complete vaporware, I’d suggest that buying in RIGHT NOW would be the smart move. Especially since Apple is clearly not through growing, car or no car.
(And I think that’s A Bad Thing. “Authority to operate [autonomously]” is something governments should be requiring and providing for autonomous vehicles. )
You wondered:
“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,”
I think the answer is two-fold:
1. The anticipated launch of an Apple car is many years away. Targets, as we know are generally based on one year.
2. Hey, I like to criticize Apple “analysts” as much as the next guy, but to be fair, they represent clients. And to raise AAPL price targets based on zero announcements from Apple is like betting big on a race horse based purely on third party hearsay and gossip.
Point being, the future will have plenty of Win, Place or Show, bets. But in the meantime, they’re better off remembering they are responsible for other people’s money. Being professionally conservative with it, is the prudent thing to do.
Good points.
Well, I consider AAPL a bargain right now, so buying in just sets you up for a mega-gain if it comes to pass, and a very nice gain if it doesn’t. I don’t think AAPL is going to get much cheaper. If it was going to happen, it would have. Low volumes just don’t leave enough weak players to create a decent stampede….
There’s over 16 billion shares of Apple in the fully diluted share count. What percentage of those shares do you think are owned by the “weak players” you frequently mention?