Home Technology Apple Inc. (AAPL) iTV And iWatch Big Revenue Potential: Morgan Stanley

Apple Inc. (AAPL) iTV And iWatch Big Revenue Potential: Morgan Stanley

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Apple Inc. (NASDAQ:AAPL) has failed get close to breaching the $500 price ceiling over the last three weeks. The stock tanked soon after the announcement of the December results momentarily slipping down to the second spot in terms of market value behind Exxon Mobil Corporation (NYSE:XOM). Thereafter, media pundits and analysts followed up with a series of reports suggesting that Apple’s glory days were dead and buried. However, the company’s slow recovery has seen it reclaim its spot as the most valuable company, albeit just ahead of Exxon and now looks to be closing in on the $500 mark.

Nonetheless, analysts are of the opinion that Apple Inc. (NASDAQ:AAPL) would probably need to refresh its leading product lines, the tablets line, and the iPhones in order to inject any sort of significant swing in investor perception. Alternatively, Apple is highly anticipated to introduce some new products to its burgeoning product line in the form of iTV or iWatch, as it looks to thrust itself once again to the very top in terms of market valuation.

Fundamentally, Apple Inc. (NASDAQ:AAPL) remains one of the cheapest stocks in its industry. Interestingly, the nature in which the stock reacted following earnings release, compared to Google Inc (NASDAQ:GOOG)’s reaction was contradicting. Sometime you ask the question of the metric for assessment. Google’s stock was up following earnings despite posting a lesser year-over-year growth rate of 6% compared to Apple Inc. (NASDAQ:AAPL), which plunged upon posting 23% rise in profits. Apple trades at 10.88x trailing PE, compared to Google’s 24.29.

In a report published Tuesday, February 12, analysts from Morgan Stanley (NYSE:MS) reviewed a series of options that Apple could introduce to its revenue stream that could probably alter investor perception on the stock. The analysts reiterated the stock at Overweight with a price target of $630.

In the report, the analysts wrote, “AAPL shares price in negative earnings growth. We view the stock as a free option on Apple innovation with product refreshes (iPhone / iPad), new distribution (NTT Docomo, China Mobile), and expansion into new segments (iTV or iWatch) as catalysts that could change market perception and valuation”.

iWatch market opportunity

Apple iTV and iWatch Potential

Morgan Stanley analysts estimate an annual incremental revenue potential of $10-$15 billion or EPS of $2.50 to $4.00 from this option. This assumes a 20% attach rate to the current 500M active iTunes accounts (only half of the current iPod and iPhone attach rate) and $200-$300 price point. Current products in the market are believed to trade at an average of $140 per unit, but with limited functionality as compared to Apple iOS platform. The average selling price for iWatch is estimated at roughly $200.

On the other hand, the TV market is believed to offer $17 billion worth of opportunity in revenue, or $4.50 EPS in the U.S, or $68 billion and $18 respectively on the global picture. The analysts assumed 10% penetration of active iTunes accounts and $1,300 average selling price per TV.

iTV Pricing potential

iTV and iWatch present Apple Inc. (NASDAQ:AAPL) with a new services opportunity which could differentiate Apple’s product portfolio in a market that is becoming increasingly competitive. This would improve investor sentiment and  aid the company’s effort towards maintaining its market share. Possibilities include, mobile payments service linked to iTunes or iWatch and video search and multi-screen viewing with iTV.

Apple Inc. (NASDAQ:AAPL)’s revenue options provide a potential upside the company’s ability to restore investor confidence. However, as expected, Apple must offer something different from what we have in the market. Otherwise, the pricing of its products would once again prove a stabling block toward gaining market share. Rivals like Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930), Sony Corporation (NYSE:SNE) and Panasonic Corporation (NYSE:PC) are already veterans in the smart TV industry with competitively priced products.

Apple Inc. (NASDAQ:AAPL) closed at $479.93 per share on Monday, February 11.

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