Much has been discussed in the media about whether Apple’s (NASDAQ:AAPL) newly-launched mixed reality or MR device could disrupt the market not just against Meta Platforms’ (META) but also on Apple’s other computing devices.
In particular, could this be the post-iPhone era that has been touted? Or could Apple Vision Pro form a new category within Apple’s wearables segment that could see it ship as many Apple Watches moving ahead?
Could CEO Tim Cook’s “spatial computing” herald the new era for Apple’s next computing platform, or is it too early for Apple investors to be excited? AAPL’s continued march from its January lows likely signaled to Apple bears that investors have confidence that it can be a successful category.
Meta CEO Mark Zuckerberg’s negative response to Apple’s foray into its current market dominance could set up one of the most critical battles in the mixed reality market over the next few years.
The New York Times (NYT) reported how Zuckerberg downplayed Apple’s new entry at a recent internal all-hands meeting. He criticized Apple’s take as likely corroborating Meta’s development so far that the Cupertino company doesn’t have “any magical solutions to the laws of physics that [they] haven’t already explored.”
In addition, Zuckerberg also pointed out that Apple’s seemingly “loner” take on mixed reality is markedly different from Meta’s “fundamentally social” approach. He stressed the strategies behind Apple Vision Pro as fundamentally different from Meta’s approach, given how “every demo Apple showed was someone sitting on a couch by themselves,” just like a loner.
Some Apple bears could suggest that Zuckerberg could have felt “sore” as Vision Pro received rave reviews from the financial and tech media. Stratechery’s Ben Thompson reportedly had “high expectations” going into Apple’s WWDC23. The Vision Pro demo he received was not only good but was “far better” than he expected.
The Wall Street Journal or WSJ’s Joanna Stern corroborated as she stressed her Vision Pro demo was “by far the best AR/VR headset she ever used.”
With a price of $3.5K, I think it’s pretty clear that investors shouldn’t expect Meta Quest Pro, priced at a revised $1K, to compete at the same level. But what if they aren’t meant to compete directly with each other? Does that make sense? Before we go on further, I think it’s essential for investors to consider whether Apple and Meta intend to go head-to-head in a potentially rapidly expanding AR/VR market.
Deepwater Asset Management’s (formerly Loup Ventures) Gene Munster accentuated that Meta and Apple’s “dramatic pricing gap” showcases their “vastly different go-to-market approaches” in a preview before Apple’s launch event.
Zuckerberg’s commentary corroborates that assessment as he added: “Our vision and values are different, and what’s at stake in shaping this platform.” As such, it’s clear why Meta is keen on pushing for broader adoption of its device earlier on with lower-priced versions such as the Quest 3, while Apple is not expected to have a “base-level” version with a $1K price point “until 2027.”
Therefore, I find it interesting that Apple seems “willing” to allow Meta to dominate the mass MR market over the next few years. Is Tim Cook & his team confident enough to leverage their proven “fast-follower” strategies to assume leadership subsequently? Or is Apple banking on ensuring its developer ecosystem is ready before it ships in 2024?
DIGITIMES reminded Apple investors that they should regard Vision Pro as a “tech demonstrator rather than a commercially viable product,” given its price point.
As such, supply chain forecasts for the initial shipment were “around 200,000 to 300,000 units in the first year.” However, Apple’s supply chain also penciled in a bull case scenario of 500K units in 2024. Using Apple’s $3.5K price point leads to an estimated $875M revenue at the midpoint. Even if I used the bull case forecasts, it suggests a $1.75B revenue accretion. Considering Apple’s FY24 consensus revenue estimates of $410.9B, the midpoint shipment forecasts indicate a revenue impact of just 0.21% for the fiscal year.
With that in mind, I think it’s clear that investors hoping for Vision Pro to make a near-term impact could find themselves highly disappointed. However, Apple investors are likely looking well ahead on what Vision Pro could potentially lead to.
Munster argued for an adoption curve that could see Vision Pro accounting for 10% of Apple’s full-year revenue. His estimates indicate that “Apple could sell 75m Vision units in its eighth year” by 2030. As such, his assessment suggests that Apple could generate about $53B in revenue, based on an ASP of $700. In essence, Munster believes that Vision Pro could be highly successful, eclipsing even the Apple Watch, which shipped “45M units in its eighth year.”
Hence, Apple Bulls likely point out that they are looking way ahead to justify its expensive valuation. However, I think one thing that seems clear is that Vision Pro is not likely to be your “quintessential” post-iPhone era that was initially anticipated.
Stratechery also argued that Vision Pro seems to be straddling the space of the Mac and iPad. He initially argued in that Vision Pro could be capitalized as a workplace productivity device [Mac] and a consumption device [iPad]. However, he followed up with a subsequent note adding that Vision Pro is not likely to enjoy the “larger degree of openness” Apple offers its Mac users.
As such, it’s challenging to envisage Vision Pro being able to replace the Mac “if the same constraints that exist in iPadOS exist in visionOS.”
Hence, I believe it’s clear that the use cases in Vision Pro are still not well-defined. It’s unlikely to replace the iPhone, Apple’s primary revenue driver, and valuation support. It’s not likely to replace the Mac. Given its price point, it’s too early to even think about trying to replicate the success of the Apple Watch. And suppose Meta is more successful in pursuing its foundational strategy of a social device with Quest. In that case, I find it highly challenging to understand the level of optimism driven into AAPL’s current valuation.
AAPL broke new all-time highs this week as Apple momentum buyers continued to chase its upside, defying calls about its expensive valuation, which I highlighted in previous articles.
Apple’s biggest device launch in eight years looks really great. But, I’m skeptical whether projections emulating the success of the Apple Watch are realistic at this point.
I remain on the sidelines, while I admit that I should have upgraded my previous Sell ratings to Buy and not Hold in December 2022 and January 2023. However, we are no longer in January, so it’s better not to chase.
Rating: Hold (Reiterated).
Important note: Investors are reminded to do their own due diligence and not rely on the information provided as financial advice. The rating is also not intended to time a specific entry/exit at the point of writing unless otherwise specified.
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