Apple Special Event 2017 – Just Another Version Launch, or Could There Be More?

Published on 14 Sep, 2017

Apple Stock Analysis

Apple’s (AAPL) September 12th special event probably has more riding on it than most of its previous ones. The stock is up 57% over the past 12 months and had a fairly strong Q3FY17. Yet, a lot of that would now have to be backed up by what analysts would term as a potential product upgrade cycle. The launch of iPhone 8 should answer that question

There are several factors that the market is looking forward to in the new iPhone. Among others, an OLED screen, wireless charging, improved AR/VR features and facial recognition are some of them. But, none are more eagerly awaited than the price point itself. A great deal of the current iPhone installed base’s reaction to the new phone and fresh buying would depend on the affordability of the iPhone 8

The most common expectation is that the average price of an iPhone 8 will be around $1,000, which is considerably higher than the current iPhone 7/7S and AAPL’s overall average iPhone selling price. There are talks of AAPL bundling the iPhone 8 with a free subscription to Apple Music for a reasonable period of time to bring down the blended price. It appears unlikely that the iPhone 8 would come with an extended free subscription of Apple Music, but a blend of free music and more accommodating lease plans is a more likely offer. AAPL would bank on its AR/VR feature and wireless charging to generate a positive response

However, the price itself is not the biggest criteria that would define how the iPhone 8 fares, especially in 2018. With a current iPhone user base of over 700 mn, a high percentage of the new model’s initial sales would have to come from upgrades. By some estimates, nearly 225 mn iPhone users are at that stage, but the most likely ones are current owners of iPhone 6 and 6S, the base of which is far lower. That’s an important aspect because the Street expects AAPL to sell nearly 240 mn new iPhones in 2018. Either way, a positive response to the latest version is a must if AAPL expects new smartphone users to pick an iPhone over other competitor models. That may not be an easy feat to achieve as global smartphone user base isn’t exactly growing at breakneck speed.

In conclusion, given the stock’s strong performance over the past 52-weeks, it would not be entirely surprising if even a slightly below par launch triggers a knee-jerk reaction and downward Street revisions. But, long-term investors must remember that despite the run-up, Apple still trades between 13x-14x FY2018 PE ex-cash, akin to legacy tech valuation, and probably still remains at the top of the technology-media pile.

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