Question of the Day: How Will the Apple Watch Launch Affect Apple’s Stock Price?

This is a great research project for students.  It will hone their media literacy skills, is high interest and current and will also teach them about how expectations are built into stock prices.

AppleWatch

You might ask the students to find answers to the following questions:

  • When is the Apple Watch launch happening?
  • Why are many people making such a big deal about the Apple Watch?
  • How many Apple Watches are experts predicting will be sold in 2015?
  • How much is the watch expected to cost?
  • How much revenue (or sales) do analysts expect that Apple will make from the Watch?
  • Will the Apple Watch make a noticeable difference in Apple’s sales?
  • What are the features of the phone that you are most excited about?
  • Given all the news and information already out there about the Apple Watch, do you think that now is a good time to buy stock in Apple?  Why or why not?

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Here are some recent resources to help them answer these questions:

  • When is the Apple Watch launch happening?

From MacRumors:  “Cook [Tim Cook, CEO of Apple] confirmed that the Apple Watch’s April shipping date was within the expected range of early 2015, which Apple considers to be the first four months of the year.”

  • Why are many people making such a big deal about the Apple Watch?

In short, it is the first new major platform that Apple has released since the death of their founder, Steve Jobs.  From Barrons:  “For better or worse, when the Apple Watch appears in April, it will be a defining moment for Apple’s (ticker: AAPL) chief, Tim Cook. It’s his stamp on the company…”

  • Where will you be able to buy an Apple Watch?

From Cult of Mac:  “Apple plans to make its timepiece an Apple Store exclusive, according to German distribution sources who claim resellers will be shut out so Cupertino can suck up as much Apple Watch profits in the first year as possible [My note:  Selling through retailers like Best Buy, Apple has to share some of the profit margin which is why selling at their own Apple stores is more profitable for them].

  • How many Apple Watches are experts predicting will be sold in 2015?

Estimates vary:  BMO analyst thinks 19 million, JP Morgan says 26 million, Evercore believes 18.5 million

  • How much is the watch expected to cost?

Sports model to cost about $350 and the “Gold” version could cost as much as $5,000, according to NBC News.  Some analysts have predicted an average selling price of $500.

  • How much revenue (or sales) do analysts expect that Apple will make from the Watch?

If you assume around 20-21 million Apple Watches are multiply that by at an average price of $500/watch, you get sales of $10 Billion (yes that is billion with a B!).

  • Will the Apple Watch make a noticeable difference in Apple’s sales?

That $10 billion sales estimate for Apple Watch seems amazing until you consider that Apple’s sales for 2015 are estimated at $225 Billion (from Yahoo Finance for Sept 2015 Fiscal Year), so now it looks more like a drop in the bucket.  However, while it may only be 4.4% of sales (and note the numbers don’t match up perfectly as I am comparing calendar year sales estimates for Apple Watch with their fiscal year, which ends in September), it could represent up to 36% of their growth in 2015 (and remember that investors like companies that can grow!).  To summarize, Apple Watch may be small as a percentage of overall Apple sales but it will be a catalyst for their growth in 2015.

  • What are the features of the phone that you are most excited about?

Here’s a short video about it’s capabilities: http://player.theplatform.com/p/2E2eJC/nbcNewsOffsite?guid=p_30stk_apple_watch_140908

From an enthusiast at Barrons:  “I think the watch will be a success for a few reasons…The Apple Watch, if it works as promised, will let you do a few simple things in a fashion that’s easier than pulling a phone out of your pocket. You’ll be able to look down at your wrist to see who’s calling or texting. With a tap on the little display, you’ll be able to reject an incoming call or dismiss a text.”

  • Given all the news and information already out there about the Apple Watch, do you think that now is a good time to buy stock in Apple?  Why or why not?

The key question students will need to answer is how much of the Apple Watch story is already baked into Apple’s stock price.  Since mid-January (and their upbeat earnings call), Apple’s stock has risen from 106 to around 127 (as of 2/13/15) or almost 20%.  Is there more room for Apple to rise?  Will their Apple Watch meet, beat or disappoint when it comes to their initial launch?  Let’s see what the students have to say!