"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...