How to value the potential of an iWatch to Apple’s bottom line
Consider that the last 12-month iPhone sales were just about 135.8 million units. Assume of these units sold that about 25% of these people, would actually purchase an iWatch.
Next we have to consider how much the iWatch will retail for.
The Nike+FuelBand currently retails for about $150. If Apple Inc. (NASDAQ:AAPL) is developing its watch with a flexible-touch display, one could estimate it would be more expensive than NIKE, Inc. (NYSE:NKE)’s Nike+FuelBand. Let’s assume a low estimate of $199 and a high estimate of $299.
With a 25% adoption rate of the last 12-month iPhone buyers, presumably about 34 million people will purchase an iWatch in the first year. At the retail prices listed above, Apple will generate about $6.8 billion on the low end, and about $10.2 billion on the high end.
Over the past 4 years, Apple Inc. (NASDAQ:AAPL)’s profit margin has ranged from 19.2% to 26.7%. Apple stated in its most recent 10-Q filing, “The Company expects its gross margin percentage to be lower in 2013 than experienced in 2012. The lower gross margin expected in 2013 is largely due to anticipation of a higher mix of new and innovative products with flat or reduced pricing that have higher cost structures and deliver greater value to customers and anticipated component cost and other cost increases.”
So let’s assume a 22% or 23% profit margin on the iWatch, and shares outstanding of 950 million. Therefore, the iWatch, on the low end, could add about $1.61 per share and about $2.41 per share on the high end.
What does this all mean?
On average, it will increase current analyst revenue estimates by just under 5%, at 4.65%. It will increase analyst EPS estimates by about 4.51% on average.
Analyst estimates call for a 16-17% increase in Apple Inc. (NASDAQ:AAPL)’s 2013 revenue, compared to 2012. However, with an iWatch, it could potentially be an increase of 22%. Moreover, analysts expect a 0.8% increase in 2013 EPS compared to 2012, while the potential of an iWatch, could increase EPS by 5.4%.
The article How Much Could an Apple iWatch Add to Its Bottom Line? originally appeared on Fool.com and is written by Brandon Pilzner.
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