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The iPad hit all the marks as a reading device, as a gaming device, and even as a touchscreen iWork/media device. We expected that Apple (NASDAQ:AAPL) would transform the traditional e-reader into a multi-function device and they certainly did. It’s the elements of the iPad that we didn’t expect that have me thinking this product will sell more units than anyone currently anticipates. Here are four reasons why the iPad may sell more than 5 million units in 2010:

1- The price points are lower than anybody expected. Optimistically we were hoping for $599-$799. Realistically we were thinking closer to $899. We figured that Apple would do what they did with the iPhone and begin with a high price to establish this as an elite product and give developers plenty of time to work out the kinks before lowering the prices for the masses. Steve isn’t getting enough credit for the $499 gift. As he mentioned in his keynote, there are 85 million owners of Apple mobile products along with 125 million iTunes/App Store credit card accounts. The iPad comes with built in demand. The real question is how can Apple sell this iPad at $499 without a subsidy? The dirty little secret may be that they are subsidizing it themselves. They want immediate market penetration and will allow Quattro’s mobile advertising to generate a new source of profits. If Apple turns into the Google (NASDAQ:GOOG) of their ecosystem (which is quite likely), they could give these things away for free. Tight lipped Apple was surprisingly optimistic about Quattro earlier in the week on the earnings call, this low iPad price point speaks even more loudly.

2- The ability to run the 140,000 App Store applications on the larger iPad screen is a huge surprise. Many developers didn’t think it would be possible. After the event, I had the opportunity to demo the iPad and I was amazed to see that there was no compromise when enlarging graphic rich games. Whatever Apple did to make this possible was well worth it, because it ensures that they maintain their huge lead on the competition with a loaded App Store. The gold rush continues for app developers.

3- I didn’t know how Apple was going to solve the connectivity issue. Nobody did. We were all talking about it prior to the event and there were no good solutions. Consumers would have refused to enter another 2 year data contract with a carrier to pay for their phone as well as the iPad. The solution is something we have never seen here in the U.S. A pay as you go data plan that is inexpensive ($14.99) and can be canceled at any time. Building an unlocked iPad was another brilliant move, this thing will have more potential buyers at its release than the iPhone has ever had. This was sorely needed until the real mode of connectivity (tethering) is ready for prime time.

4- Last but not least, Apple built this thing with just enough differentiating features to separate it into its own category. Consumers still need an iPhone and they still need a MacBook but they will soon realize that they also need the iPad. When you hold one for the first time you will realize why you never read books or browsed magazines on your laptop or phone. The iPad screen size is ideal. It’s perfect for watching television and movies on the go. It’s going to catch on like wildfire in the gaming community. Those who are worried that the iPad will cut into sales of the iPod Touch or the MacBook are the same people who worried that McDonald’s (NYSE:MCD) chicken nuggets would cut into hamburger sales. Successful expansion into new categories is always a good thing. Apple did it. They created a new category within the mobile Internet tsunami. Do you know what this means for investors? I’ll let you decide.

To sum it up, the market has been in an unsure mood over the last few weeks as it tries to form a new identity for stage two of the market recovery. Don’t let this short term weakness fool you. The Apple iPad is for real and not one penny of it is priced into the stock. As analysts add iPad projections to the new accounting methods we are going to see some big upgrades that the stock will follow. Excluding cash, this stock is trading under a 12 forward p/e. That disconnect won’t last very long. I predict you are going to hear about some very big name investors who typically shy away from tech, establish large positions in Apple. This valuation has got a lot of people talking.


Disclosure: long aapl

Source: Four Ways Apple Beat iPad Expectations