“We realize we have more work to do on the subject.” — Analyst Chris Caso
From a note to Raymond James clients that landed on my desktop Thursday:
Shorter-term, we feel very good into the quarter… For the rest of the year however, we think AAPL’s stock performance will depend on the “one more thing” – the new AR/VR product that by now has been widely rumored. Our upgrade of AAPL in July 2019 was based on the 5G upgrade cycle ahead, and that was the right call. And although COVID has been somewhat of a unit headwind due to production issues, now that we’re in the second year of that cycle and with the stock up 244% since July 2019, more is needed to keep the stock moving.
We’re in the camp that AR/VR could be that catalyst that continues to move AAPL higher. We think Meta’s Oculus 2 is a fantastic demonstration product that shows the capabilities of VR, from content consumption to gaming to Metaverse applications. We think Oculus however suffers from two limitations – an unwieldy form factor, and a lack of developer support, which has led to a lack of content. A product from AAPL would likely solve the first, and unquestionably solve the second.
Our hesitation is that we’re not yet convinced the VR headset will be coming this year. Our supply chain checks did pick up an AAPL VR headset on production forecasts for 4Q22, but unit volume was small (just a few million units) and we didn’t hear high conviction that the forecast would hold. We think a VR product from Apple would likely sell in the tens of millions of units annually, and that early adopters would support that, even if it started at a high price point. So we were puzzled by the low unit forecasts, and we realize we have more work to do on the subject.
But given the solid short-term setup for iPhone, a new iPhone form factor of course in the fall, and the promise of AR (albeit with a lot of unanswered questions), that leads us to conclude that we can remain constructive on AAPL’s stock.
Maintains Outperform rating and $185 price target.
My take: First time I’ve heard someone claiming to have unit volume production numbers.
Also, I wonder if he’s worn one of those VR headsets for more than 5 minutes.
And I’m reminded of claims like “Apple will fail if it doesn’t deliver a watch in the next 90 days.”
Several million units in a launch quarter for a new likely $1,000+ device in a new product category is a huge amount! That’s several billion in additional revenue in case one needed the math done. To be honest that number is higher than what I expected for the rumored VR/AR headset.
For the record I expect the follow up AR spectacles to be the real killer product, selling tens/hundreds of millions of units a year, and was expecting the initial AR/VR headset to be more of a device to ship in just enough numbers to early adopters in 2022/23 to allow developers to build a sizable enough App Library that the AR spectacles will have a wide array of compatible apps upon its arrival in 2023/24
The first device is unlikely to have many native apps, unlike the iPhone, iPad and watch, this makes app development critical to success.
Similarly, what’s with the bearishness around iPads? Decisions were made to allocate limited components to higher margin iPhones than iPads, but in my mind that is just winding up the springs to launch higher iPad sales in Q2 & Q3.
Here in Australia I know many parents who wanted to buy their kids new iPads for our long summer holidays ahead of the 2022 school year. In Dec not a single store had 9th gen iPads and apple’s wait was 45 days! None of this demand for 9th gen perished, except for the *lucky* few kids that got iPad Pros instead.