The iPad is not for everyone and the first-generation version of product will surely have its critics. However, it is clearly a smart and nimble device targeted at Apple Inc.’s core customer – the heavy content user. So while the market may start off relatively small, the gaming and education customer bases could prove to be the sweet spot for driving adoption.
In terms of pricing, US$499 for the entry-level iPad with WiFi only and 16GB of storage should entice early buyers. At the high end, the 64GB version will list for US$699, with another US$130 for 3G capabilities. These price points are lower than many had expected and the market reacted by driving Apple shares higher when they were announced. In fact, the consensus starting price may have been closer to the US$699-US$799 range and some expected a cost as high as US$1,000.
As with the first iPod and iPhone, improved versions and lower prices in the future could be what provides the real surprise in terms of iPad sales. The device is not only a near-term upgrade option for more than 30 million iPod Touch users, but it may also compliment existing Macs and address part of the rapidly-growing home computer market.
Initially, the main criticisms appear to be the lack of a webcam, no Adobe Flash and the device’s inability to simultaneously run multiple applications. This may be its biggest downside, but Apple will likely address this issue before the next model is released.
If the battery life proves to be 10 hours of constant use as claimed, which includes watching videos, that is impressive.
With the iPad being positioned more as a small computer, with web surfing, apps, video, maps, games, email, a calendar and books, it is more of a threat to netbooks than to eReaders.
Devices like the Kindle or Sony Reader focus primarily on reading books and periodicals. Apple may have credited Amazon for carving out the e-reading market, but it is taking the game to the next level with the iPad. Of course, the device has a significantly higher price point than the US$269 Kindle 2, so it will require greater commitment from consumers. The iPad could actually spur additional Kindle book sales since the Kindle app is already available on the iPhone.
The iPad, like the iPhone and iPod, has a backlit screen. While this is useful for occasional reading, it will likely not appeal to those interested in long-form reading, particularly books, due to the higher level of eye strain.
Apple’s device appears better suited to reading of newspapers and magazines. Nonetheless, a new entrant in this space naturally means greater competition and the evolution of reading devices is still at a very early stage. The company did reveal that it has deals with major publishing companies to provide content for its iBook store, which points to the potential of it becoming a go-to reading device for students.
Here is what the Street had to say about Apple’s announcements and the outlook for the stock.
“Apple has done it again. With the iPad, we believe Apple cleared another hurdle, entering a new market category with a high-value content and computing-driven experience. We think this cleared hurdle is important for investors’ perception of Apple’s strategic leadership.”
Mark Moskowitz, J.P. Morgan
Rating: Overweight
Price Target: US$240
“We see iPad as the first step in multi-stage growth catalysts for Apple in 2010. We believe iTunes will be updated for additional content, not mentioned yet, including newspaper subscriptions and TV shows. We see the TV subscription model as critical to take adoption of Apple’s devices to the next level. We also see streaming as inevitable for Apple in the near future.”
Peter Misek, Canaccord Adams
Rating: Buy
Price Target: US$250
“The iPad’s launch partially exceeded hype, but, owing to high 3G pricing andthe absence of hoped-for features, investors may be uncertain whether or not Apple has created a new computing category. We believe iPad may become an enduring growth engine.
Apple’s valuation may be range-bound near-term, as we expect some debate amongst reviewers and analysts over the iPad’s upside impact. We would be accumulating on any related volatility, given our strongly positive view of Apple’s superior fundamentals, pending catalysts 2H/CY10, and compelling valuation.”
Mike Abramsky, RBC Capital Markets
Rating: Outperform
Price Target: US$275
“Unlike the majority of past Apple events, the shares remain firm today primarily because of the pricing for the iPad. Investors are extrapolating that unit estimates could be materially higher than expected given the $499 base price. The flip side is that the low price point together with overlapping features does increase the risk of cannibalization of iPod touch sales.”
Richard Gardner, Citigroup
Rating: Buy
Price Target: US$275
“We believe the App store ecosystem is one of the keys to making the device compelling over the long-term. We believe developers will flood the App Store with compelling programs for users, fueling significant sales very quickly.
We were surprised that this feature was not in the device but its absence seems to help pricing. We believe a camera will make its way into the iPad well within a few years time.
Even accounting for potential cannibalization of other products, we believe the iPad adds at least $1.00 in earnings power quickly and $20 plus in value to shares.”
Ben Reitzes, Barclays Capital
Rating: Overweight
Price Target: US$285 (up from US$265)