Yesterday, Apple reported it’s Q4 2019 earnings and one of the biggest takeaways from the various metrics reported was the fact that Apple’s wearables are now it’s largest hub of growth in terms of absolute dollars year-over-year. Services grew by about $2.25 billion, while Wearables/Home/Accessories grew by about $3.5 billion. Allow me to provide a few tweets to illustrate Apple Watch, AirPods and Beats’ meteoric growth this past year.
Apple FY 4Q19:
– $64 billion revenues (up 2% YoY)
– Services: 12.5B (+18% YoY)
– Products: $51.5B (-1.5% YoY)– iPhone: $33.4B (-9.2% YoY)
– Mac: $7B (-4.8% YoY)
– iPad: $4.7B (+16.9%)
– Wearables, Home & Accs: $6.5B (+54.4%)– Americas: +6.6%YoY
– Europe: -2.8%
– China: -2.4%— Francisco Jeronimo (@fjeronimo) October 30, 2019
It’s always important to point out that Apple bundles Wearables with Home & Accessories. That said, Tim Cook in the past has referred to this category as wearables on earnings call in the past, and did so again this year:
Apple Watch, AirPods, Beats, and Accessories were listed as driving growth in the Wearables / Home / Accessories segment. Implication is that home products did not contribute much to overall year-over-year growth for the category.
— Neil Cybart (@neilcybart) October 30, 2019
Considering that Apple only owns about 5% of the smart speaker market with HomePod and Apple TV is bleeding market share, it should be no surprise that the growth from this product category is largely coming from wearables (and to an extent, accessories). So, based on IDC analyst, Francisco Jeronimo’s tweet, it can be inferred that of the $6.5 billion dollars of products sold in this category, a very big chunk of that number is tied to wearables. Last year, Apple generated roughly $3 billion worth of revenue from this category, which should really point to how rapidly the two heavy hitters, AirPods and Watch, are being adopted.
Question from the analyst on Apple earnings call of attach rate for Apple Watch and AirPods of installed base.
My estimates are less than 20% combined attach rate of AirPods and Apple Watch of the iPhone installed base.
Takeaway = massive headroom for growth.
— Ben Bajarin (@BenBajarin) October 30, 2019
Another very interesting tidbit that I came across yesterday was from Tech.pinions and long-time Apple analyst, Ben Bajarin, who pointed out just how large the untapped market of AirPods & Apple Watch within the iOS user base. Apple obviously sells its wearable peripherals more effectively to its iPhone user base, especially the Apple Watch which requires an iPhone. That said, Ben estimates that Apple has only tapped into about 20% of its user base with its wearables offering.
Another twitter user, pointed out that the Watch specifically might have even more room to run:
Per @LoupVentures it’s est. that the active installed base of Watches is about 65m vs the iPhone installed base of about 915m. This roughly implies a 7% penetration of the Apple Watch’s addressable market. Puts the Apple Watch opportunity into context.
— Garmin Guy (@brooksjunkie) October 31, 2019
There’s massive growth potential here. To add more evidence to this effect, take this tweet here from Apple analyst, Neil Cybart:
Tim Cook to analyst: We aren't giving precise numbers for our wearables business, nice try though.
Three out of four Apple Watch buyers are new to Apple Watch (same as last quarter).
— Neil Cybart (@neilcybart) October 30, 2019
In the last two quarters, 75% of Apple Watch purchases were to people who were buying their first device. Obviously, some people are buying their second or third Apple Watch or pair of AirPods because they’re upgrading to new iterations, and with AirPods, they’re replacing lost AirPods, but by-and-large, most of the wearables sales are going toward first-time buyers. That should lend some credence this next tweet by Ben Bajarin:
I’ve been long on Apple Wearables since day one.
We can see a day soon when Watch AND AirPods see 100m install base each.
— Ben Bajarin (@BenBajarin) October 30, 2019
Preach, Ben. Preach. 100 million AirPods owners AND 100 million Watch owners…. with something like ~80% of runway within the Apple ecosystem to run on. Imagine how large this could one day be if Apple were to open its peripherals up to the Android ecosystem.
It’s also important to point out that Apple’s AirPods Pro are really the true second generation version of AirPods, as the previous upgrade was so iterative, with the most notable improvement being a wireless charging case and the H1 chip, which is at its onset and not all that noticeable yet. So, imagine how large this number will be next year after a full year of AirPods Pro on the market, which have been met with borderline perfect reviews so far (just search on twitter and let me know if you see a negative review – I’ve yet to see one).
While services are clearly an important part of the company’s growth narrative, it’s becoming clear that the real darling is with Apple’s wearables. Services and wearables complement each other so well too that one can foresee how the two grow in unison. For example, using Apple Pay on your Watch, or Apple Music with your AirPods.
It truly feels like we’re just getting started with what’s going to become possible as Apple’s peripheral devices mature, opening new doors of possibility. The stage is set for a very interesting next decade from Apple as the company begins to move into an era that’s more about the ancillary offerings and services than the iPhone itself.
-Thanks for Reading-
Dave
