The Future of Apple: “Other Product” Division Growing Like a Giant
Guggenheim analyst Rob Cihra is out pounding the table on Apple Inc. (NASDAQ:AAPL), betting that its “Other Product” accessories segment of the AAPL Watch, Airpods, and HomePod could yield $22 billion by next year.
With full bullish confidence ahead, the analyst reiterates a Buy rating on AAPL stock with a $215 price target, which implies a just under 25% upside from where the shares last closed. (To watch Cihra’s track record, click here)
“Apple has never been about going after a whole market’s unit share but rather peeling off the high-value tops for max revenue and profit share. It can then compound that by selling MORE into its ‘niche’ installed-base of loyal, high-value customers. Apple has most recently been leveraging that model to grow its “Services” revenues, and we think ‘Other Products’ (e.g., Watch, AirPods, HomePod) could be next, doubling from $11B in CY16 to $22B by CY19E,” predicts Cihra.
The analyst wagers the tech titan’s “Other Products” accessories could leap to become Apple’s 4th biggest business this year at over $19 billion, or taking a beyond 7% slice of total revenue. Moreover, Cihra anticipates the segment could evolve to the company’s “fastest-growing,” rising 34% year-over-year.
Though iPhones comprise a lion’s share 63% of Apple’s revenue, followed by Services at 13% and Macs at 9%, the analyst nonetheless angles for Other Products to soar past iPads this year- all while boosting as a percent of revenue by +1% point each year from the span of 2016 through 2019.
Meanwhile, “We think of Services leveraging Apple’s CLOUD deliverables (e.g., Apps and media, Siri cloud-based ML/AI) but Accessories at the EDGE, further monetizing Apple’s installed-base and services, able to either build in more on-device ML/AI or provide a direct conduit to the cloud that does not require an iPhone in between,” the analyst adds.
Apple Watch could take up as much as half of Other Products revenue this year, Cihra calculates, with the Watch shipping a 26% year-over-year rise to almost 22 million units for a whopping $9.5 billion- contributing 3.6% of the titan’s total revenue.
Cihra notes, “But we believe new MUSIC accessories, which can also be seen as Siri access devices, look to be Apple’s fastest growing, including AirPods and now HomePod.”
Meanwhile, AirPod wireless headphones have rocketed as “an upside hit over the past year,” the analyst comments, pinpointing a real scramble at play for the Apple team just trying to fulfill massive demand. This analyst is angling for AirPods to trounce Beats and take 16% of the titan’s Other Products revenue. Between Apple Watch, AirPods, and Beats, Cihra forecasts total revenue from “Wearables” hitting a 42% year-over-year rise to $13.8 billion this year.
Though HomePod is a “late” serve from Apple into the smart speaker arena and stands as the newbie of Other Products, the analyst concludes calling this product a crucial one. There could be a door opened for a rise in local edge processing, which would include on-device machine learning (ML) as well as artificial intelligence (AI).
TipRanks indicates a largely positive analyst consensus rating circulates Apple shares. Out of 30 analysts polled in the last 3 months, 17 are bullish on AAPL stock while 13 remain on the sidelines. With a return potential of 12%, the stock’s consensus target price stands at $193.52.
Tesla Even Has This Bear Encouraged
Tesla Inc (NASDAQ:TSLA) may be battling a track record of back-to-back delays when it comes to the sluggish production start for its mass-market Model 3; but one analyst is betting the electric car giant attains its highly anticipated production goal by the close of the second quarter.
In other words, it won’t be long before CEO Elon Musk’s brainchild revs up to 5,000 Model 3 Sedans produced each week.
CFRA analyst Efraim Levy asserts, “That will be a big deal the bulls can hang their hats on.”
Notably, investors have kept their attention peeled to battery production obstacles as the biggest hurdle constraining Model 3 production- a predicament Musk deems “ironic.” Keep in mind, “battery modules really should be the thing we’re best at,” Musk explained on TSLA’s fourth-quarter earnings call.
Finding the risk here still outweighs rewards when it comes to Tesla’s challenges in becoming a profitable company, Levy may be more positive- but he remains staunchly in the bearish camp.
Overall, “It is very hard to find a way to get me enthused about Tesla shares at current levels,” writes the analyst, adding: “People are paying a lot upfront for future potential.”
Therefore, the analyst maintains a Sell rating on TSLA stock, but bumps up the price target from $275 to $300, which implies a close to 11% downside from current levels. (To watch Levy’s track record, click here)
TipRanks suggests apprehension hovers around the electric car giant empire when it comes to Wall Street’s majority opinion. Based on 20 analysts polled in the last 3 months, 5 rate a Buy on TSLA stock, 8 maintain a Hold, while 7 run for the hills, issuing a Sell on the stock. The 12-month average price target of $314.88 notably suggests 6% in loss potential for the stock based on these analysts’ expectations.