Expectations for the 10-year anniversary Apple (Nasdaq: AAPL) iPhone 8 are fairly high among analysts and investors. But while investors will be watching sales numbers closely, iPhone pricing could also have a major impact on Apple stock.
In a new research note, Bank of America analyst Wamsi Mohan says the price of the new iPhone models, potential discounts on old models and the mix of new model sales and old model sales will be important factors for Apple investors to monitor.
Bank of America is expecting an average sales price (ASP) of $894 for the iPhone 8, about $125 higher than the current price of the base iPhone 7 Plus model. In addition, the firm is projecting 60 percent of future iPhone sales will be new models and 40 percent will be older models. Mohan says Apple will likely continue its pattern of lowering the price of older models by $100 following the iPhone 8 launch.
Given the 60/40 mix split, Mohan says blended iPhone average sales prices are headed higher in 2018 and 2019 regardless of additional price hikes on subsequent iPhone models, such as the iPhone 8S.
Assuming a $125 price increase for the iPhone 8, Bank of America is expecting a blended iPhone average price of $751 in 2018. However, Mohan says there could be room for upside in those estimates, and a larger price hike would have a meaningful impact on Apple’s earnings per share.
“Based on our assumption of unit mix and [a] base case ASP increase of $125 for iPhone 8, every additional $50 higher ASP on top of that adds revenue/EPS [of] approximately $4 billion/60 cents in [2018],” Mohan writes.
Bank of America is estimating 2018 EPS of $12 for Apple, suggesting an iPhone ASP $100 higher than expected could boost full-year earnings by 10 percent.
Even with Apple stock up more than 37 percent year-to-date, the market may still not be factoring in the full impact of rising iPhone prices.
“A two-year runway for ASPs is underappreciated, in our opinion,” Mohan says.
Early demand indicators suggest the iPhone 8 cycle could be huge. In June, Loup Ventures found…
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