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business newsAnalysis of 11 Post-Christmas Ruminations on Apple and the iPad
By
Sean Udall
Mar 03, 2011 11:00 am
Here, a review of how some iPad and Apple themes are either affirmed or adjusted on the introduction of the iPad 2.
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Given that Apple (AAPL) just released the newest iPad yesterday, I thought it would be beneficial to review my piece 11 Post-Christmas Ruminations on Apple and the iPad and explore the themes I've been highlighting on this name for some time now.
I'll have a couple posts on third-party reviews later but suffice it to say it's going to be hard to find many too critical of this product's refresh. In my view, Apple did what it needed to do and these products improvements, in my opinion, are akin to when the company released the 3GS to much enthusiasm.
So without further adieu, let's see how my iPad (and some Apple) themes are either affirmed or adjusted on the new product's introduction.
1. The iPad is the standout tech product since the iPhone and the Droid OS being paired with winning designs from Motorola (MMI) and HTC.
Put simply, the iPad's refresh confirms this assertion as Apple just meaningfully raised the bar once again for the competition. In my view, the Motorola Xoom is on par with the new iPad given how stacked the product is with leading components and its upgrade path for LTE. This reiterates just how high the bar is currently on price for performance.
2. Is it possible that iPad could be a market share category killer like the iPod was while maintaining something like an 80% plus market share?
This speculation seems more possible, and I'll answer this more directly in No. 5. However, I believe we will see many clarion calls that Android (GOOG)-based tablets are dead in the water now and I would not agree with this assessment.
3. Did you know that even while many analysts estimates (for Apple) seem less attainable all the time (a primary concern of mine), the consensus growth for EPS is only 17.3% and revenues 16.5%?
We should see more iPad fervor now which will catalyze the analyst community to meaningfully raise estimates once again.
4. The iPad will see much stronger enterprise acceptance than the iPhone.
I wholeheartedly stand by this prediction and its one Buzz & Banter (subscription required) readers will remember me penning from the inception of the original iPad.
5. Stiff competition will emerge with ultra-compelling designs, but my early estimate (through 2013) is that the rest of the "field" will be fighting for half of the pie as Apple will have the other half.
This is certainly becoming the case as was witnessed at the CES. The ending market share might be the toughest thing to game but I'm going to say that Apple maintains something in the 75-80% share range (of tablets) through 2011, 65-72% through 2012, and likely maintains close to half to 60% of the market through 2013 and beyond. Or at least until several product categories morph into the "next big thing."
6. As stated some time back, the iPad will be a tremendous sales tool in the field. Moreover, those without one will fear a lower close rate.
Simply put, case closed! It's already happening.
7. The iPad is the Swiss Army knife of electronics. It combines entertainment, lifestyle management and business/computing mobility. It's a lifesaver on a vacation as it's multiple devices in one. Heck, it's a great remote control. For those with Comcast (CMCSA) you must try the Xfinity app for the DVR controls.
I'd say this is completely affirmed as well. The new improvements strengthen all of the above and adds in several new categories such as HDTV and has created a new job class (app development) and self employment income opportunities -- much like eBay (EBAY) did back over a decade ago.8. How many per house? Will the iPad (and/or tablets) be like cars where the industrial world owns about two per household, or is this a multi-product item like TVs where they are found in the majority of the rooms?
Right now I'd say more tablets than cars!
9. Amazingly, we are not yet seeing this product cannibalize Macs and Macbooks. Unlike many others, I do see this occurring in time but this might not be a major negative as the iPad lifecycle is much shorter, resulting in multiples of product turnover versus Macs.
Still no evidence of cannibalization. However, the new thought I'm having is that the proliferation of tablets may further compress margins (not necessarily units) in the higher-end computing segments as the performance bar rises to on laptops and desktops with the immense acceleration in computing power of the tablet category.
10. All this sets Apple up for additional catalysts and revenue streams from content distribution/management and more surprises from a product standpoint. I won't steal my own thunder here as I have more soothsaying to come throughout next year.
We have seen a major content deal already and this is still in early days. Again, more to come and I don't think Netflix (NFLX) is going to like it.
11. All this is causing me to re-think my long-held Apple target for the low-mid $400s. Central to this is my belief that Apple could and should trade at or above a PEG ratio of 1 after stripping out cash. Even at a PEG of 1, that is far from a premium valuation for one of the premium growth stocks on the planet. Currently Apple's PEG (less cash) is .7 so a move to 1 would put Apple firmly at my old target. A move to 1.15-1.25 would put Apple's shares well into the $500s.
For comparison, and disallowing for cash, F5 Networks (FFIV) PEG is at 1.7 and Amazon (AMZN) is at 2.7 versus Apple at .85.
As stated above, estimates should rise on more catalysts than just the iPad refresh, and this, combined with my call for valuation expansion, has me feeling more convicted in my low to mid $500s view on Apple.
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No positions in stocks mentioned.
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