We're adjusting our fair value estimate for 
Apple (AAPL) to $87 per share, in light of the firm’s recent seven-for-one stock split. On a pre-split basis, our intrinsic value for Apple is $609, slightly higher than our prior pre-split $600 fair value estimate, as we have made some positive adjustments to our valuation model regarding long-term iTunes revenue growth. In theory, and in our actual valuation for Apple, the split does not affect our fair value estimate.
However, we recognize that short-term investors may have been incrementally more upbeat about the stock in recent weeks because of the split, as the lower price may make Apple’s shares more attractive to retail investors, along with the theory that a lower share price may make it possible for Apple to now be included in the Dow Jones Index. Neither theory affects our long-term thesis on Apple, and we suspect that any upside from such short-term tactics has more than evaporated, given that Apple’s stock is up over 8% during the past month.
We were a little surprised that Apple’s recent Beats acquisition wasn't discussed in detail at WWDC, but perhaps because Beats Music will be a native app, where Apple’s developers may have little to add (or may not be allowed to add) to its functionality. Apple has also occasionally announced Mac hardware upgrades at WWDC, but perhaps those will be saved and combined with Apple's usual iPad & Mac hardware announcements in October. Another notable absence, in our view, was any mention of Apple TV, not only in terms of hardware upgrades, but also any software updates or openness for further developer support.
Apple publicly disclosed a host of statistics, such as 75 billion app downloads to date and over 800 million cumulative iOS device sales, most of which were relatively in line with our estimates. The exception was Apple’s announcement that it attracted 130 million new customers to iOS within the past year, more than what we anticipated. We view this metric as a bit of a double-edged sword that bears watching. On the one hand, the stat bodes well for future iOS growth in the near term, and a potentially larger base of loyal iOS customers that will stick with the ecosystem and buy multiple iOS and Mac products in the long term. On the other hand, we've long believed that Apple's exponential growth stemmed from a first-mover advantage in both the iPhone and iPad, and that slower revenue growth in recent quarters is due to both the law of large numbers and a customer mix shift as more and more customers aren't first-time buyers, but instead, are repeat customers that will remain loyal to the platform and will contribute to a relatively steadier stream of free cash flow.
We believe this customer mix shift is still occurring, but perhaps not as fast as anticipated, and we do see a modest risk that some of Apple's recent growth (especially in China) may be coming from less-loyal customers that wouldn't hesitate to switch to an Android device down the line. Thus, we continue to believe that software and services will be critical in helping Apple provide these first-time users with a positive experience and numerous reasons for them to stick with iOS for future smartphones and tablets in the long term.
We continue to maintain our $600 fair value estimate in light of a recent run-up in Apple’s stock price, likely because of optimism around an upcoming iPhone 6, new products, or both. We should note that we do not model any revenue or earnings around new product categories until such devices are announced, but recognize positive optionality around such releases. Otherwise, at this point, we think that any upside beyond our fair value estimate will likely stem from either Apple's ability to gain market share in the p remium smartphone space, or revitalize sluggish iPad growth.
