Morgan Stanley has estimated that Google’s new smartphone, the Pixel, will generate $3.8 billion in revenue for the company in 2017.
The estimate is based on the expectation that Google will sell around 5-6 million Pixels next year, which retail between $649 and $869.
The bank also projected that Google will sell 3 million Pixels in the last three months of 2016, generating $2 billion.
For a comparison point, Apple sold 212 million iPhones in the 2016 financial year, generating the company $137 billion in revenue. In the last quarter of 2016, Apple sold 45.5 million iPhones, generating $28 billion in revenue.
The Morgan Stanley note also estimates the Pixel will be half as profitable for Google as the iPhone is to Apple, thanks to the former device's higher cost of materials.
The Pixel phone will generate a 22%-25% gross profit margin, the note says, varying according to the model. For perspective, the iPhone 7's gross margin is at around 41%, but this has notably declined from 57.7% in 2009.
But Google will profit from the Pixel beyond sales of the phone itself, the note says, through what Morgan Stanley's analysts refer to as "Android user monetization."
People spend three times more money on iOS shopping apps than they do Android ones, but some of the Pixel's features will help close this gap, according to the bank's analysts.
Features unique to the Pixel, such as the Google Assistant, the Pixel camera, and Daydream (Google's virtual reality headset, which works with the Pixel), plus the smartphone's deeper app integration, increased prominence of Android Pay, and improved computing power (compared to other Android devices), will ultimately lead to users spending more money on Android, according to the research note.
Morgan Stanley's analysts also predict that these features could see the Pixel driving higher mobile search monetization for Google as advertisers will spend more to reach the consumers who spend the most on their mobiles.
