Barron’s ran a piece over the weekend that reiterated some of the points I made last month on the launch of the Apple Watch (see “Swiss, It’s Not: Apple’s $17K Watch Is No Collector’s Item” for Barron’s take and “The Apple Watch Will Be A Flop: Here’s Why Apple Doesn’t Care” for my original piece). In February, when rumors were first starting to leak about the pricing of Apple’s (AAPL) high-end Edition watch, I wrote:
Some rumors have the sales price closer to $10,000, or about on par with an entry-level Rolex.
This immediately begs the question: Who in their right mind is going to pay Rolex prices for a kitschy piece of wearable tech that will be obsolete in two years?
Seriously. I get the appeal of a high-end watch with a real Swiss movement. It’s classy and old-fashioned…and it’s something a man can pass on to his son or grandson one day. There is something infinitely appealing about that. But a digital watch that beeps with incoming text messages kinda lacks that timeless appeal.
Writing for Barron’s, Technology Week columnist Alexander Eule wrote:
What is Apple thinking? That was a common refrain around the Barron’s office last week after the company priced its top-end Apple Watch at $17,000. Even the Apple bulls, this writer included, were scratching their heads.
My colleagues at Barron’s Penta , experts in the high-end watch world, said they were “floored” by the pricing. “These are commodity pieces, basically a small computer that is wrapped in gold, with nothing intrinsically unique or irreplaceable about them,” Penta editor Richard C. Morais told me.
He rattled off names of limited-edition watches from the likes of IWC and Panerai, all of which sell for prices similar to the Apple Watch Edition, the official name of the company’s gold collection.
A hand-assembled 75th Edition IWC Portugieser with an eight-day power reserve, limited to 925 pieces, starts at $11,400. Apple’s $17,000 Edition watch is effectively the same as the $349 base model, plus a few flourishes: the gold, a leather band, and a sapphire crystal face.
Eule refers to himself as an Apple bull, and I should be very clear as well: I am an Apple bull and am currently long the stock. But I believe there is a very high probability that the Apple Watch, or at least the high-end version of it, is a flop.
But again, as I wrote last month, it really doesn’t matter for Apple. Apple’s iPhone franchise is stronger than ever, and if Apple never has another successful product launch in its history, the iPhone alone is enought to carry the company for probably the next decade.
Furthermore, the strength of Apple’s balance sheet is unrivaled…perhaps in the 300-year history of the modern publically-traded company. Apple could fail to earn a profit for the next ten years and would still have enough cash to keep its dividend at current levels…and that’s after paying taxes to repatriate the cash. And despite Apple’s gargantuan $740 billion market cap, the company is reasonably cheap by standard valuation metrics. Shares trade hands at just 14 times forward earnings estimates, slightly less than the S&P 500 average.
This may sound perverse coming from a long shareholder, but part of me hopes the Apple Watch bombs and that Wall Street sells the stock off in a knee jerk reaction. It will create a fantastic buying opportunity for anyone willing to look beyond the headlines.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog. As of this writing, he was long AAPL.