Apple's (NASDAQ:AAPL) long-awaited deal with China Mobile (NYSE:CHL) is a game-changer. Piper Jaffray analyst Gene Munster estimates that Apple could sell 17 million additional iPhones in 2014 as a result of the deal, which would represent only about 2% of China Mobile's more than 750 million mobile subscribers. Munster believes this could boost Apple's revenue by 5% in 2014. Based upon S&P Capital IQ estimates of about $185 billion, that 5% bump would equate to about $9 billion more in revenue for Apple. And Apple's earnings should receive a greater than 5% boost, since the iPhone is considered to be among Apple's highest margin products.
Some would say that Apple's stock has already moved in anticipation of this news, and judging by the muted response in Apple's share price (up only about 1%) on the day the deal with China Mobile was reported, that may in fact be the case.
But I believe this deal is worth far more than a simple 5% increase in revenue and earnings would imply. Whether Apple sells 17 million more iPhones in 2014, or even 20 million to 24 million, as research firm Cantor Fitzgerald estimates, that number is likely to increase substantially in the years ahead. Apple is in the process of doubling its store count in China, which should drive brand awareness. And in a region where many consumers love to touch and feel before they buy, Apple's highly regarded shopping experience could convert more Chinese shoppers into Apple customers. Even more importantly, as China continues to steadily build a massive middle class, rising incomes will make Apple's products more affordable to many Chinese consumers. As this occurs, I believe Apple will experience its legendary halo effect in which iPhone purchases lead to more iPad and even Mac purchases in China. That in turn, could help drive Apple's stock price significantly higher.
The Foolish bottom line
I've written before that I believe Apple is on its way back to $700 per share because of five potentially powerful catalysts, with the China Mobile deal being the first to come to fruition. If you're interested in hearing about another stock our expert analysts think can surge in the year ahead, The Motley Fool's chief investment officer has just selected his No. 1 stock for 2014. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.
Joe Tenebruso manages a Real-Money Portfolio for The Motley Fool and is an analyst on the Fool's Stock Advisor and Supernova premium service teams. You can connect with him on Twitter: @Tier1Investor. Joe has no position in any stocks mentioned.
The Motley Fool recommends Apple and owns shares of Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.