Don’t Overthink AAPL: Growing Device Base & Increasing Revenue Per Device

Don’t Overthink AAPL: Growing Device Base & Increasing Revenue Per Device

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.

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