Have Analyst Underestimated Apple Again?

April 11, 2015 0 Comments

Did you hear about the Apple Fanboy who tried to preorder an Apple Watch at 5 o’clock in the morning, only to be put on a three month waiting list? That’s exactly what happened to me. Apple decided to launch their preorders on Friday 12 am, pacific standard time, and in less than 2 hours, shipping times for the watch was pushed back from 4 weeks to at late as July.

Naturally, the cheapest model, the Apple Watch Sport, are all sold out and on backorder until June. All of the regular Apple Watches are also sold out, except for the ones with the cheap ass sports bands. The one I tried to order (the most expensive one), is on backorder until July, for whatever reason. Even the expensive $17,000 Edition Apple Watches are on backorder.

Considering this, my question is: has the analyst underestimated Apple once again? Most likely…

Reviews for the Apple Watch have been very mixed, ranging from ‘mostly positive’ with some ‘noticeable flaws.’ Nilay Patel from ‘The Verge (probably one of the best reviews I have read)’ refers to the watch as “the most capable smartwatch available today. He also mentions that watch he reviewed for the past week and a half is “kind of slow,” and believes more options are needed to customize notifications and taptics.

David Pogue from Yahoo likes the Passbook, Remote, and Workout apps, as well as the ability to quickly reply to text with pre-typed responses and animated emojis. The weaknesses, of course, are the battery life. Pogue mentions that, “Nobody needs a smartwatch” and refers to the device as a “satisfying indulgence.”

There are some negative reviews. The Wall Street Journal’s Jonna Stern believes that consumers should simply wait for the next model. She believes that the body is too thick, and needs to be thinner. Bloomberg’s Joshua Topolsky doesn’t like the fact that the clock isn’t visible when when the watch isn’t engaged. The purpose of this is actually to save battery life, but Topolsky feels that it is “annoying” to look down at his watch with no ability to see the time.

Have these reviews swayed the street’s opinion? Societe Generale’s Andy Perkins downgraded Apple Inc  from ‘Buy’ to ‘Hold.’ This was mostly due to this sentiment towards iPhones, which is manly the sentiment I’ve had for the longest time: Apple continues to be an iPhone first company, with majority of their revenue originating from iPhone sales. He also factored in the strong dollar in its effect on sales (for a primer on how a strong dollar effects Corporate Profits, click here):

Additionally, our work on the breakdown of handset sales by country implies a 5% currency headwind. We therefore estimate that ASPs were down in the March quarter to $651 from $687 in the December quarter.

He also mentioned some things regarding the Apple Watch:

However, we do not believe that the Apple Watch will be a major game changer for Apple, at least over the next 12 months. Although Apple has revolutionised a variety of categories before, we worry that the 18-hour battery life could result in a disappointing experience for users. Additionally, we are not convinced that the apps that will be available for the Apple Watch will be sufficient enough to encourage usage.

Raymond James of Tavis McCourt also cut his rating on Apple Shares from ‘Outperform’ in terms of market performance to Hold, stating:

We continue to believe comps in FY16 will be quite difficult, while early reviews on Apple Watch suggest it will fall far short of the “insanely great” benchmark, at least in this first iteration.

Considering the reviews, the analysis sentiments and the early preorder sellout, how does this fair for Apple’s stock?

Shares of Apple haven’t exactly taken off, but the company is projected to sell at least 1 million units over the weekend. Despite the problems outlined by reviewers, one thing is clear that people want to try out the watch for themselves. It may not be what it should be now, but people will never know what capabilities it could have upon future releases.

One thing is clear: Apple is a difficult company to bet against. While I’ve done it successfully in the past, I think my luck, as well as the shorts, have run out.

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