For Apple (AAPL) shareholders waiting for their beloved stock to recover, there's good news and bad news. First the bad news: Unless or until Apple comes up with another hot product, the stock has likely put in its all time highs. The iPhone and iPad remain the leaders in their categories but the gap is closing and margins eventually will do the same.
Eric Jackson, founder of IronFire Capital says not to worry, help is on the way in the form of the long-awaited Apple Television. Citing the work of Morgan Stanley analyst Katy Huberty, Jackson says Apple's earnings could double just off iTV in the next two years.
Based on extensive consumer surveys Huberty estimates that Apple could sell 13 million TV sets at over $1,000 a piece within 12 months of introduction. That alone would add $14 billion to revenues and $4.50 to earnings. Therefore revenue and earnings estimates of $220 billion and $57 respectively, will have to be moved higher on a base case.
Jackson takes it another step further, noting that Huberty's data was only based on U.S. consumers calling themselves "very interested" in buying an iTV unit. Expanding that to include those who are "somewhat interested" brings in an additional 43 million units. Assuming Apple continues to do 2/3 of its sales overseas bumps the total potential target market for iTV to as much as $168 billion in revenues and $54 dollars in earnings.
Obviously there are an endless number of caveats, including the fact that Jackson doesn't expect an iTV until the second half of next year. Still, the numbers give shareholders some perspective on where Apple can find growth.
As it stands currently, manufacturing televisions is a simply horrible business with no margins. What's more, Apple's pace of innovation has fallen off noticeably in the last few years. Does the company still have the chops to make something "insanely great" from scratch? Jackson thinks they do.
"Every time Apple goes into one of these spaces they figure out a way of doing it in a cool and special way that makes people want to part with the money in their pockets," Jackson says. "I think they're going to do the same thing with TV."
Steve Jobs may be gone, but Apple still has legendary engineer and visionary Jony Ive on board as well as CEO Tim Cook. Jackson says each has a chip on his shoulder and strong desire to prove there's more to Apple than Steve Jobs and iTunes.
Can Apple reinvest television the way they did in so many other spaces? By this time next year we should have our answer. Let us know your thoughts in the comment section below.