The Success Of Airpods Could Add $10 Billion To Apple’s Market Cap

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Apple‘s (NASDAQ:AAPL) new wireless headphones, the Airpods, went on sale towards the end of 2016. While the buzz surrounding the product launch was relatively subdued, given the limited availability, Airpods appear to be one of Apple’s most compelling products launched in the Tim Cook era, garnering very positive reviews from both critics and consumers. Below, we spell out some of our projections for Apple’s newest product and size up its potential impact on Apple’s stock price.

We have a $127 price estimate for Apple, which is slightly ahead of the current market price.

See Our Complete Analysis For Apple Here

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While Airpods enable users to listen to music and phone calls wirelessly, much like other Bluetooth headphones in the market, they also provide deeper integration with Apple’s product ecosystem. For instance, Airpods offer a seamless pairing process, the ability to access Apple’s digital assistant Siri, in addition to providing longer wireless range when paired with Apple devices.  This ecosystem effect, coupled with Apple’s recent move to do away with the headphone jack on its latest iPhone 7 handsets, should make Airpods fairly easy to cross-sell to iPhone customers.

We estimate that Apple should be able to ship roughly 22 million Airpods in its first full year of sales, assuming an attach rate of 10% with the iPhone. Assuming an ASP of $140, this would translate into revenues of roughly $3.1 billion in calendar year 2017 (Airpods are priced at $159 a pair, but we assume that the Apple’s ASP will be lower, as the company will sell via third-party stores in addition to Apple retail stores). This could help to boost revenues of the iPhone accessories business from our previous forecast of ~$2.25 billion (or $11 per iPhone sold) in 2017 to ~$5.4 billion (or $24 per iPhone sold). Assuming that our iPhone gross margins and other forecasts remain at current levels, with accessories revenues remaining flat over the rest of our forecast period through 2023, this would increase our price estimate for Apple stock by about 1.5% to about $127. This would increase our market cap estimate for Apple by about $10 billion.

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