“When product-market fit happens, growth can be explosive.” — Gene Munster
From “Apple’s Path to a Sleeper Hot,” mailed Monday to Loup Venture subscribers:
We believe AirTags have the potential to be a sleeper hit with consumers and surprise investors over the long run by adding 1% plus to Apple’s overall revenue. While it sounds like a small number, 1% would equate to $3.3B on Apple’s expected 2021 revenue of $333B. As a point of perspective, Sonos, the audio company, does about $1.5B in annual revenue today.
Apart from the adoption lesson, there’s also a financial lesson from AirPods. That is, when product-market fit happens, growth can be explosive. We estimate that Apple sold about 80m AirPod units in CY20, the fourth full year of AirPod availability. At an ASP of around $170, this equates to $14B in revenue. We estimate the company will sell about 95m units in CY21.
Using AirPods as a reference point, we can get a sense of how many AirTags could be sold over the next five years. AirTags star at $29 per tracker and $25 if purchased in a pack of four. At 1/6 the price of AirPods, it’s reasonable to anticipate Apple will sell more AirTags than AirPods. Applying a 4x factor yields 380m AirTag units in year five (2025). While 380m units feels aggressive, we believe 120m units in 2025 is reasonable based on a 40% compound growth rate.
Another test of our assumptions is comparing the percentage of iOS users that have adopted AirTag, AirPods, and Watch. The table below outlines this exercise. We’re modeling for each user to have two AirTags on average, with a replacement cycle of roughly four years. Putting it together, this would imply 155m AirTag users in 2025 and 14% iOS penetration, assuming the active iOS user base grows 3% per year from around 1B today to 1.1B in 2025. As a point of reference, this 14% iOS penetration would be similar to the attach rate to date for AirPods at around 15% and Watch at just under 10%.
My take: What sleeper? AirTags are a hit, wide awake and in plain sight.