"We estimate the premium Smartwatch opportunity for Apple ranges between $10 bn to $38 bn."
From "Watch Out!" a note to Evercore clients that landed on my desktop Friday:
Investor focus remains as always on the iPhone at this time of the year; however, for a year in which investor expectations are ranging from revenue declines in the bear case to modest growth in the bull case, every driver of growth matters. In that respect, we are taking a look at both the near-term and long-term growth opportunity from the recent move from Apple to enter the premium Smartwatch category; although, with significant room for further premiumization from hereon.
The growth in the Smartwatch segment has exceeded a +50% CAGR in terms of units and +60% in terms of revenue, with Apple managing to establish itself as a leader both in revenue and unit share despite a narrow and generic positioning relative to competition. However, the Ultra marks Apple’s entry into the market for performance watches for Sports (led by its positioning for Extreme Sports) as well as entry into the premium Smartwatch market.
We estimate the premium Smartwatch opportunity for Apple ranges between $10 bn to $38 bn, with the low-end of the range encompassing the upgrade of consumers focused on Sports, while the high-end of the range encompasses all consumers focused on basic features, like better battery life.
Furthermore, we see a roadmap for Apple to launch more premium watches to extend the portfolio, which although less likely to materially impact the revenue TAM on account of lower volume implications, will materially impact the margin opportunity for the company.
Maintains Overweight rating and $200 price target.
My take: Just to be clear, Daryanani isn't saying the Ultra alone will generate $10 to $38 billion a year. I think what he's saying the Ultra model is giving Apple a new entry to a $10 billion sports watch market and the $38 billion market for people willing to spend whatever it takes to get a smartwatch with better features, starting with longer battery life.
Meanwhile, two useful bar charts and two tasty pies...
That is nice to hear. It would be nice to be able to keep the watch on at night for the sleep monitoring it offers in stead of having to take it off to charge overnight. I was in an Apple store yesterday and despite the larger size it was very comfortable to wear and looked good despite me having very slim wrists. My wife and I may be upgrading this year. I would still have to figure out the wristbands they offer with the watch. We were somewhat time limited on our visit this time.
On a different, anecdotal note, the store wasn’t very busy but there were people buying products there.
No surprise, that Amit has a higher PT than most other analysts who don’t see it. Apple’s 61% revenue CAGR in SmartWatches stems from continual innovation, which applies to all products and services. Powerful juju.
On the charging issue Neal, for overnight sleep monitoring; I use my Watch for sleep monitoring and find that it only takes about 20-30 minutes charging to reach “full charge” after a day’s use. I usually do the charge anytime that I plan to sit at a desk to work, read, eat, watch a program or shower since I am not taking steps during these periods. It works just fine. You may want to try that regimen. No matter, Joseph B has the best of the world’s with his new Ultra adjustment set-up.
Lastly, I truly believe the new and innovative Ultra is going to give a very nice bump in revenues and profits to Apple’s accessories category.
I second casual charging for 20-30 min. I bought one extra Apple Watch MagSafe charging cord for use downstairs. If I notice I’m below 40% or lower. I can charge while eating dinner, or watching videos. Otherwise, plug / charge while cleaning up / winding down before bed. 30-40 min from even 10% low power warning goes to full but I also use Anker Power IQ 20W / port chargers for my iPhones, iPads and Watches. They work great and are very reliable.
Then I can use for sleep tracking or just leave on charger so topped off and ready to go in the morning.
Thanks. Old habits about charging my Apple Watch are hard to change.
I agree that the Apple Watch with the introduction of the Ultra will be a nice way for Apple to increase its revenues but that is only one part of the equation for me. I also see it as a way to help entice people into the Apple ecosystem. I wonder how many new the the iPhone these days switch from Android in order to be able to use an Apple Watch. There does seem to be ways for Android users to have an Apple Watch but it seems to be a bit of a hack job to be able to do it.
1) It’s Apple’s 61% share of the smartwatch share by revenue that impresses me most.
2) It seems almost silly to take the trend back to 2014, since the Apple Watch was introduced in 2015. (Wikipedia /wiki/Apple_Watch, for reference). Knock-on observations:
a) There were essentially no smart watch sales in 2014
b) Starting the Historical review in 2015 therefor makes more sense, but that would also slightly decrease the CAGR, which might not be as exciting as the message that Daryanani wishes to send.
Still, 61% share of the smartwatch share by revenue … 🙂
1) extend battery life to greater than 1 full day or at least match Apple Watch Ultra life with regular Watch. Even lower power displays, lower power S-series processors, sensors, and electronics, optimized power usage, larger batteries or all of the above.
And the one that will freak everyone out:
2) Introduce two, maybe three (one Ultra version) sizes of an Apple Round Watch, with 3-4 nice finishes and possibly a truly distinctive functional bezel. Make sure at least the largest size looks very traditionally masculine.
This would blow peoples’ minds and, I guarantee, at least 50% more unit sales.
There is a sizable group of folk out there who collect or who have multiple colored Watch bands. I counted the other night after receiving my latest new band colors and I now am the proud owner of 100 Apple colored Watch bands (all different colors).
I have spent more money on Watch bands than I have spent on Apple Watches. I have owned three Apple Watches: the Original Apple Stainless Steel, Apple Stainless Steel Series 4 and my current Apple Stainless Steel Series 6. I may be buying the new Ultra.
In summary I have spent approximately $2,250 on Apple Watches, but $5,000 on Apple Watch bands.
I write the above because Apple knows what I know and told you above. Some folk spend more in total on Watch bands than on their Watches. So brother Bart Yee, if and when Apple goes to a “Round Watch” casing, then those folk with many bands collected over the years will be watching closely to see if we still can use our bands. I suspect at some point Apple will need to transition to different size bands, but hopefully it want be during my life-time after collecting my 100 bands and more to come. 🙂
they’ll happily sell you a dongle! 🙂
If you look at traditional round-faced mechanical watches, the band connection point are still always straight. I don’t see why that would change for a round-faced Apple Watch.
If Apple Watches continue to get bigger, eventually the current band might not look right, but that’s a different aesthetic problem for you to manage!
The width of the present Apple Watchband connector and the need to have a rectangular screen with a size similar to at least the smallest existing Watch pretty much rules out anything but a huge circular Watch, and that would be a lot more uncomfortable to wear since its edges, not counting control buttons, would project more into the back of the hand. That means a completely new watchband would be needed, and Jerry’s collection would not be usable.
BTW, the Ultra’s screen is absolutely massive. A circular screen that fits those dimensions would be enormous. It’s also taller. I almost need to remove a link from my SS Apple link watchband. As it is, the Ultra slides about a half an inch farther up my wrist.
I do pass on the Apple Watches I’ve been gifted.
My nurse said she only takes hers off to bathe. That image was soothing while I lay there helpless on a morphine drip.
“Revenue in the Watches segment amounts to US$66.07bn in 2022. The market is expected to grow annually by 6.90% (CAGR 2022-2026).
In global comparison, most revenue is generated in China (US$15,770.00m in 2022).”
Let’s see how Apple is looking to grow in the category. If estimates are correct of Apple Watch Revenue of 14 Billion (using the higher number I saw) then there is a potential for a huge amount of growth available if Apple can tap into it.
Additionally, 20% of Overcast users have the Apple Watch app installed if I heard correctly.