Monday, January 19, 2015

Fiscal 1Q 2015 Final Estimates

As of Friday's close of $105.99, AAPL is trading at a 12.5x multiple on my next-twelve-months EPS estimate (9.5x ex-cash).

I expect very strong results for Q1 with record-breaking net income of $15.7b, but guidance for Q2 may come in light (even at the top end) relative to expectations. Hope I'm wrong on that.

I'm estimating last quarter's revenue growth in the high teens (setting the tone for the whole 2015 Fiscal Year) as well as strong +39% gross margins, majorly driven by a high proportion of the iPhone user base upgrading to 6 and 6 Plus with unit sell-through growth estimated at 29/24/17% for Q1/Q2/FY15 (compared to 11/27/16% for Q3/Q4/FY14) and FY15 ASPs holding steady or slightly increasing despite FX headwinds early in the fiscal year.

I've finally (and very tentatively) modeled something for Apple Watch: as a base case (for now) I consider it a solid accessory for the iPhone and then strongly discount it by 25-35% (due to final product uncertainty and other unknowns such as pricing potential) which results in about 15% of compatible iPhone penetration (75m of 500m iPhone-5-and-higher user base after first 3 years).

Those saying Watch doesn't move the needle must not be looking beyond FY2015 at all, as in fact I model only 6.5m units for this fiscal year with shipments starting in the end of March contributing 1m units in the current quarter. Yet, my conservative base case already represents about 25% of the company-wide revenue growth in '16 and '17, getting to a modest $20b by then (somewhat slower than iPad which had the steepest revenue uptake of any Apple product, but this excludes additional wristbands and other Watch accessories which I model separately and even more tentatively). Again, it could easily be 2x that, considering the fast adoption of compatible iPhones and the customer base's high acquisition power.