In order to find out how one would value Apple shares, one starts out by looking at the market potential of its products, iPhone, Watch, iPad and Macs.
The iPhone has the widest appeal, and it is safe to assume that Apple will continue to be able to corner the high end market. As a rough estimate, I see the following numbers:
| Region | Users |
|---|---|
| North America | 150m |
| Europe | 100m |
| China | 150m |
| Rest of Asia | 150m |
| Rest of World | 100m |
| Total | 650m |
As the world gets richer, this number will slowly rise, and could reach a billion within two decades.
For the iPad, I believe the market to be a bit smaller, since the 6+ size is good enough to fulfill most consumption roles, so let’s make that 450m users. The Watch has great potential, and as such I see two thirds of iPhone users getting one eventually, say 400m users. The Mac is more limited, as it appeals to professionals. Let us say that the market is 150m users.
To get to the addressable market, we need to know how often users will replace their units. We have seen from the last iPhone upgrade that the age of annual performance doublings is over, and knowing that only 20% of iPhone users have upgraded in the last half year, I estimate that we will see a significant lengthening of upgrade cycles: 4 years for the iPhone and Mac, 6 years for the Watch and iPad. This leads me to the following estimates:
| Product | Users | Annual Units | Per Unit Profit | Total Profit |
|---|---|---|---|---|
| iPhone | 650m | 160m | $200 | $32.0b |
| iPad | 450m | 75m | $100 | $7.5b |
| Watch | 400m | 65m | $150 | $10.0b |
| Mac | 150m | 38m | $300 | $11.2b |
| Total | $60.7b |
With 5.82b outstanding shares that would be an EPS of $11, with some extra profit from services. While there is a risk, that as the technology matures, we will see a longer replacement cycle, longer lifetimes will also increase the lure of purchasing a quality product. Even though everybody knows what people value with Apple, namely superior quality, design, customer service, and especially the experience of using the products, there has been nobody able to compete. So the chance that Apple will be replaced as the quality leader is relatively low, with Xiaomi being the greatest threat.