Apple’s iPhone average selling price or ASP took a substantial jump after the iPhone 6 became available in September 2014. In the two years prior to the 6 the iPhone’s ASP was $607 and $603, respectively. The year after its launch it jumped to $671 in fiscal 2015, and has hovered around $650 in fiscal 2016 and 2017. With the announcement of the iPhone 8, 8 Plus and X Apple may be able to substantially generate a higher ASP, which would help its revenue and earnings.
The key price points to keep in mind are:
- The entry iPhone 7 with 32GB of memory sold for $649 at its launch
- The entry iPhone 8 with 64GB of memory sells for $699 ($50 more)
- The price jumps for greater memory was $100 for the 7 (32GB to 128GB) and is $150 for the 8’s (64GB to 256GB)
- However the iPhone 7 and 8 with 256GB of memory both cost $849 at launch
- The entry iPhone 8 Plus with 64GB of memory sells for $799 vs. $769 for the entry 7 Plus with 32GB of memory ($30 more)
- However the 8 Plus with 256GB of memory at $949 sells for $20 LESS then the 7 Plus with 256GB of memory ($969)
- The entry X sells for $999 with 64GB of memory which is $230 higher than the entry 7 Plus at $769 (and in line with expectations)
- And the 256GB model X version costs $1,149 (another $150)
(Note: This chart replaces a previous one that depicted iPhone prices taking into account the discount with a contract. The new chart shows the cost of the iPhone without the discount included)
What this means to the top and bottom lines
Apple is on track to sell about 218 million iPhones this fiscal year and between 240 and 260 million in fiscal 2018. Every $10 increase in the iPhone’s ASP would add $2.4 to $2.6 billion in revenue next year and assuming that gross margins stay relatively the same for each model (meaning higher priced iPhones costs are proportionally in-line with their higher prices) and keeping operating costs constant each $10 would add between $0.13 and $0.15 in EPS. Currently the Street is estimating that Apple should generate $10.65 in EPS for fiscal 2018 after earning $8.90 in fiscal 2017. Therefore each $10 in iPhone ASP would increase the EPS growth rate by 1.5% to 1.7%.
If the higher priced iPhone 8, 8 Plus and X can lift the iPhone’s total ASP by $50 it would have a substantial impact to Apple’s top and bottom line. Using the mid-point of 250 million iPhones in fiscal 2018 an extra $12.5 billion in revenue would increase fiscal 2018 revenue from a projected $262 billion to about $275 billion and its growth rate from 15% to 21%. Fiscal 2018 EPS would move from $10.65 to about $11.30, which translates to 27% earnings growth vs. the current 20%.
If the stock’s 15ish PE multiple were to stay the same the additional EPS would add 6% or about $10 to the stock price. It would not be surprising to see the PE multiple expand by a point or two which could then add an additional $10 or $25. In total a higher iPhone ASP could push the stock close to $200.
