Evercore takes a deep dive into Apple AR/VR

From a note to clients by analyst Amit Daryanani that landed on my desktop Sunday:

ALL YOU NEED TO KNOW: We are on week two of our five week series spotlighting the 5 KEY underappreciated growth vectors for AAPL that could further expand their ecosystem and extend the platform.

This week we will focus on AR/VR products, which have become a hot topic post FB’s pivot to the metaverse. AAPL has been working on AR/VR solutions for the last 4+ years and we expect the hype into a formal launch in late 2022 to serve as a catalyst to the stock price.

Apple is rarely first to market with a product, but they almost always release a product that defines the category. We expect a similar dynamic in AR/VR as companies like Meta are already selling headsets, but we think the market remains in its infancy and there is still plenty of time for Apple to release a product.

Apple has more than 100 AR/VR related patents and they have done multiple acquisitions to build differentiated technology in the sector. The product will also leverage Apple’s leading developer ecosystem, which competitors will struggle to match as Google is the only other company with a similar App Store.

Conservatively, should the AR offering have a comparable trajectory as Apple Watch it could contribute ~$18B to sales and 20c EPS at scale (~4-5% of current estimates). In a bullish scenario, should the adoption trend be close to AirPods the contribution could be $38B in sales and ~40c in EPS at scale (~8% contribution to sales/EPS). We think the implied trust AAPL has built across both consumers and developer community could prove to be a key enabler for AAPL’s success.

Maintains Outperform rating and $210 target.

Cue Evercore's cumulative seven year sales charts:

My take: Color me skeptical. I've got a collection of dusty VR glasses in the basement. Not having seen the devices he's talking about, I have a hard time imaging sales growing at rates approaching any of these products.

See also: Evercore takes a deep dive into Apple FinTech

7 Comments

  1. Robert Paul Leitao said:
    Though we don’t see the AR/VR products yet, we do see the awesome performance power of Apple silicon and the seamless integration of functionality across Apple device lines. No one thought the processing power of Apple silicon was intended for the iPhone, the Mac and iPad lines only, right?

    0
    May 8, 2022
  2. John Blackburn said:
    Apple Glasses will sell as iPhones have, their value proposition clear, compelling, and—crucially—non-technical in appeal:

    • Dynamically variable focus, “dang tiny label…ah…”
    • Dynamically variable tinting
    • Instructional: watch the other person show you in situ
    • Virtual Tai Chi instructor with virtual class, anywhere
    • Auto-identification of plants, animals

    A long tail of use cases, each with a different appeal to different people. All it will take is one use case per person to hook you because there will be nothing else even close.

    3
    May 8, 2022
    • Robert Paul Leitao said:
      John: Thank you. As I was reading your comment several other use cases came to mind. Though sold by the millions, this product will be unique to each person who uses a pair. That’s totally Apple.

      1
      May 8, 2022
  3. David Emery said:
    To quote the Macalope:
    “Everything gets compared to the iPhone, as if the company should be shipping world-changing devices every three years when no other company in existence is held to the same standard.”

    6
    May 8, 2022
  4. Steven Philips said:
    John: It’s easy to come up with use case scenarios. (I don’t mean that as a negative response to you.) But the issue is how well Apple will set up GlassesOS and how easy/difficult it will be for developers to implement the use cases you are suggesting WELL. We’ve already seen a bunch of crap VR. If we can get a WEARABLE (in the sense of tolerable to wear for a few hours) and a few GOOD uses it will be another Apple lock.

    0
    May 8, 2022
  5. Karsten Pater said:
    I just recently used a Valve Index VR to play HL Alyx. It was impressive! It’s a no-brainer for me, that someone sells a good bunch of them if he manage’s to make the smaller, cable-less and get rid of the base stations for location. Everything where I see progress in Apple’s product’s!

    0
    May 8, 2022
  6. Fred Stein said:
    First disaggregate AR and VR.

    Apple has already and will continue to do great things with AR. AR can encompass 3D effects and remain within the confines of existing flat screens. Thinking broadly, Apple’s flat screens (and all the magic hw and sw lighting them) already bring us into the metaverse, which also already includes nearly everyone else’s metaverses, FB, Zoom…..

    VR requires 3D stereoscopic experiences that takes us out of our normal life. VR imposes itself, imposes technology on us. While Apple may deliver such a device, the challenge is how to do it the “Apple way”, technology that serves us, not technology imposed on us. As well Tim made it clear; “no niche products”.

    I remain curious, not skeptical, but certainly not sold on, immersive goggles from Apple.

    0
    May 8, 2022

Leave a Reply