What are the two most surprising things about Apple (AAPL)? According to Apple management it’s the success of the App Store and the iPod Touch. At a time when the iPod was supposed to fade away into the sunset, the iPod Touch catches fire? Huh? Why would anyone buy a Touch when they can buy an iPhone? People actually pay up to $399 for the Touch. Nobody saw this coming. So what does the surprises success of the Touch and the 3 billion downloads from the App Store tell us about the iPad? A lot.
The iPad finds itself right in the middle of Apple’s sweet spot. Let’s analyze the converging highways of potential buyers. On one highway you’ve got 75 million current iPhone and iPod Touch users who are familiar with the App Store and can’t wait to utilize the bigger screen. On another highway you’ve got 33 million units of 2009 netbook sales showcasing the demand for such a product. Then we’ve got the gamers: According to the Entertainment and Merchants Association 2009 Annual Report once a consumer decides to play video games, they continue to play for life, 68% of all American households are now playing video games and total industry sales jumped to $23 billion in 2008. It is estimated that there are 217 million online gamers worldwide.
Apple COO Tim Cook recently revealed that the goal of the Apple design team was to make the iPad invisible to its user. After six months of using the iPad, Cook mentioned that it feels like you're holding not a device, but the internet in your hands. An internet that you can touch and interact with. Well, what does this mean for gamers? This will be the first gaming device that allows the player to feel as if he can reach into the game and control it. Gamers are the ones who have flocked to the iPod Touch- what are they going to do with the iPad?
Other highways of potential buyers include the 9 million doctors worldwide, the 60 million teachers worldwide, the 15.9 million U.S. college students (Google (GOOG) couldn’t come up with the global number), and there have been approximately 5 million e-book readers sold by Amazon (AMZN) and Sony (SNE).
So what is the opening weekend of iPad sales going to be like? Before we answer that question let me tell you what the iPad really is. It’s the first device ever built to use the internet they way it was meant to be used. It’s like taking the top off of your sports car for the first time and being able to enjoy the majestic mountain vistas of a drive through the canyon. Until now, we’ve been squinting out the back window of Grandma’s 1987 minivan (the laptop). The mobile internet is ready for it’s own device. This is it.
I’ll ask the question again, what will the opening weekend of iPad sales be like? I remember seeing a picture of the Santa Monica Apple store on day #32 of iPhone 3G sales and there was still a line curling around the block. The $499 iPad isn’t tied to an exclusive phone carrier like AT&T (T) and it doesn’t take ten minutes to set up service like the iPhone. How many sales would you project if this was called an ‘iMac Touch’? Because that’s exactly what it is. I can’t tell you the exact number of iPad’s that will be sold on opening weekend, nor can I tell you how many Apple will sell in the first year because I don’t know. But I do know that there are hundreds of millions of people driving on multiple highways throughout the world who are ready to get out of the back seat of Grandma’s minivan.
The opening weekend of iPad sales is primed to blow away expectations and not one dollar of iPad success is priced into Apple stock. I expect we will see shortages at Best Buy (BBY), AT&T stores, Apple stores, and wherever else they are sold. Apple’s biggest problem will be keeping up with the demand. I’ll see you in line.
Disclosure: Long AAPL