Apple (AAPL) Watch Average Price Seen at $550+; Top Model Could Sell for $7,500+, Analyst Says

March 3, 2015 3:44 PM EST
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Apple (NASDAQ: AAPL) is set to announce its highly-anticipated Apple Watch at an upcoming event on March 9th with device sales expected to start in April. Current Wall Street thinking on the average selling price (ASP) of the device is around $500, which has raised some questions about margins. However, Piper Jaffray's Apple-whiz Gene Munster thinks the ASPs for the Watch could be closer to $550 or $575-600 when adding additional bands. This could mean higher segment gross margins than previously thought, according to the analyst.

Munster notes the company will sell the Apple Watch in three lines:

  1. Apple Watch Sport - We currently know that the Apple Watch Sport will be the base model starting at $349, but the Sport category, when factoring in potentially different case and storage options, we believe the Sport segment may carry closer to a $450 ASP
  2. Apple Watch - We expect the mid-level Apple Watch to start at $499-549 and likely carry an overall ASP closer to $650.
  3. Apple Watch Edition - Finally, we believe the Apple Watch Edition will start at $4,999 and potentially have a segment ASP of closer to $7,500 factoring in higherend bands.

Munster next notes it's all about unit contribution. He sees the Apple Watch Sport contributing about 55% of units, while the Apple Watch will contribute 45% of units. Meanwhile, Apple might sell around 10,000 of the high-end 'Edition' units. In total the analyst estimates 8 million Apple Watch units this year.

Even though the 'Edition' might only sell 10,000 units it first year, to put that number in perspective, Piper analyst Erinn Murphy, in conjunction with industry estimates, believes that Rolex sells 600-750k watches per year, thus Apple at 10k in the first year would be about 2% the size of Rolex.

"We believe this is a reasonable potential first year size as high-end consumers weigh the power of the Apple brand vs. other luxury watches and the trade-off of quickly depreciating technology in an Apple Watch vs. other more traditional luxury watches that may hold value better," he said.

Munster also believes that the interchangeable bands on the Apple Watch are a key feature that Apple will promote heavily. "Based on pricing of the Apple-made silicon cases for iPhone 6 at $35, we believe that the company's Apple Watch Sport elastomer bands are likely to start in the same range ($29-39)," he comments. "We expect leather bands could be in the $49-59 range based on leather iPhone cases. The metal bands are more difficult to decipher for pricing given the lack of a comp in Apple's current line up, but we believe that steel bands could be around the $99 range and gold bands in the thousands of dollars. If you assume that 55% of bands purchased are elastomer, 35% leather, 10% steel, and about 5,000 total gold bands are sold, the average band ASP could be around $50. Thus if half of all watch buyers purchase a band, it would add $25 to the ASP of the watch category ($575 ASP). If, on average, every Watch buyer purchases a band, it would add $50 ($600 ASP)."

The analyst maintained an Overweight and price target of $160 on Apple.

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Piper Jaffray, Gene Munster, Erinn Murphy