Growing Device Base & Increasing Revenue Per Device. We attribute the after-market reversal in shares of AAPL to investors getting a handle during the call on Apple’s long-term opportunity. Tim Cook went out of his way to reinforce Apple’s massive and growing active device base. To summarize: 1.3B active devices including 240M Services subscribers. Couple this with the iPhone ASP increase of 15% y/y and the Apple story remains very compelling.
Updated Model. We’ve updated our Apple model, available here.
Was 2 New iPhones 1 Too Many? Apple stumbled in it’s most recent effort to expand the iPhone product line with 2 new models in 2017 (iPhone 8 and iPhone X), one potential cause of the iPhone unit miss. Apple sold 77.3M iPhones, below Street estimates at 80M. So, we were wrong; Apple didn’t nail the 2017 iPhone launches. We think it was partly due to the more complex buying decision between iPhone 8 and iPhone X and partly due to the iPhone X’s limited availability in the quarter. However, iPhone X has been the top-selling iPhone every week since it launched, which drove iPhone ASPs up 15% y/y to $796 vs. the Street at $756. Herein lies Apple’s long-term opportunity: a growing active device base coupled with increasing revenue per device.
Herein lies Apple’s long-term opportunity: a growing active device base coupled with increasing revenue per device.
ASPs are rising and Services revenue growth continues (up 18% y/y). Apple remains on pace to double its 2016 Services revenue by 2020. More importantly, however, Services revenue is an important part of increasing revenue per device. Net-net, we think the iPhone unit miss is more than offset by the ASP and Services story.
Key Data Points + Our Take:
- Apple has 1.3B active devices, up 30% in 2 years. This is higher than the 1.2B active devices most thought.
- Apple has 240M subscribers across their Services offerings, up 58% y/y and up by 30M subs in the past month. Apple clearly wanted to reinforce its massive, growing, and loyal base of users.
- iPhone ASP was $796 in Dec-17 vs. the Street at $756 and vs. $695 y/y. This is a material positive as we consider the value per Apple user.
- The stock treaded water after-market. Reaction tonight is a win for AAPL shares. Keep in mind AAPL is 7% off its all-time high and the company just guided well below expectations. Investors are on-board with Cook’s message that this is about the installed base and Services subscribers. Investors seem to be taking over from traders who had owned AAPL for the iPhone X cycle.
- We estimate that Apple sold 8.4M Apple Watches in the Dec-17 quarter, up 10% y/y.
Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.