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Loup Ventures

About the Author Loup Ventures

At Loup Ventures, research is in our blood. The spirit of our team has always lived on the curiosity to discover new insights that yield investment opportunities. For years we did this on Wall Street, focused on public tech companies. Now we invest in private frontier tech companies, but public companies like Tesla, Nvidia, and others are also meaningful innovators in frontier tech. These public companies are shaping the emergence of AI, robotics, autonomous vehicles, and AR/VR just as much as early stage startups. As a result, we’ve always kept a watchful eye on public market participants to inform our private investment strategy. Gene Munster is a managing partner and co-founder at Loup Ventures. Prior to Loup Ventures, Gene was a managing director and senior research analyst at Piper Jaffray where he covered technology companies including Apple, Amazon, Google and Facebook. During his 21-year tenure, Gene received many acknowledgements including: Top Stock Picker from Forbes, Best on the Street from The Wall Street Journal, and was widely recognized for his work on Apple. Gene holds a bachelor’s degree in finance and entrepreneurship from University of St. Thomas.

Apple (AAPL) Event First Take: Pricing Tier Mastery Will Drive ASPs


By Gene Munster

  • While the Apple (AAPL) event went largely as expected, the new iPhone lineup should provide upside to both iPhone units and ASPs over the next year.
  • Apple, once again, has shown their mastery of pricing tiers, which will extract more revenue per customer. The iPhone lineup now ranges from $449 to $1449 (an unweighted average of $765), compared to last year’s range of $349 to $1,099 (an unweighted average of $636).
  • As we model the mix of the new iPhone lineup, factoring in 9 new phones with price points above the FY18 ASP ($745), we’re finding it difficult to keep the overall ASP below $800. For conservative modeling, we expect 12% to be Xs Max, 9% to be Xs, and the most popular sku to be the Xr at 38% of units.
  • We are raising our iPhone ASP estimate for FY19 to $791 (up 7% y/y) vs. the Street at $765 (up 2% y/y).
  • The iPhone franchise is better-positioned for sustainable growth (0%-5%) over the next several years, given Apple continues to earn recurring iPhone customers with innovative hardware and software.
  • The new Apple Watch, with a 35% larger display and additional health-related features, increases our optimism in the potential of Apple’s wearables category, which currently accounts for ~5% of revenue and grew 60% in Jun-18.
  • Updated AirPods and iPads, along with the AirPower charger, were noticeably missing — a non-event in the context of today’s step forward for the iPhone franchise.

Larger Screens Are Good for ASPs and Unit Growth

Display size increases have historically lead to upside in units and ASPs. The iPhone Xs Max’s display size is 26% larger than the previous largest iPhone display (iPhone X). This is the largest increase in screen size since 2014 when the iPhone 6 display jumped 35% from the iPhone 5s. At the time (FY15), consumers responded to the larger display size, propelling a 37% increase in iPhone units (up from 13% in FY14). ASPs also moved higher, growing 12% y/y ($599 to $669).

This increases our confidence in our FY19 iPhone unit growth of 3%, compared to the Street at 0%. Separately, we are now modeling for a 7% ASP increase in FY19 (to $791), compared to the Street at 2% ($756). If the iPhone units reach FY15 levels of 231M units, overall iPhone units would grow 6% in FY19. This comparison increases our confidence in our current 3% iPhone unit growth target.

 

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio.