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24
Jul
2015

What Apple’s Quarterly Earnings Call Tells Us about the Apple Watch

POSTED BY James Moar
While we didn’t expect Tim Cook to bare all with the Apple Watch sales, there were some indications in the quarterly earnings call that shed some light on the wearable’s performance. Although the Watch revenue has been part of the Other Products category, Cook did mention that ‘It would not be an inaccurate thing to look at the sequential revenue, the year-over-year change and assume that was the total watch revenue.’ Apple CFO Luca Maestri clarified this by stating that ‘The contribution from Apple Watch accounted for well over 100% of the growth of the category’, thanks to declining sales of the iPod and accessories.

Quite apart from being bad news from those betting on a success for Beats headphones, these comments give an indication of overall sales. Depending on the average selling price of Apple Watchthe y-o-y revenue increase indicates between 1.5 and 2.5 million units. Apple CFO Luca Maestri also remarked that the Watch has sold more than the first iPhone or the iPad in a comparable period – that is 87 days. The first iPad was the better selling of these two, and sold 2 million in 60 days.

Given the above, we can assume there have been more than 2 million Watch sales so far.

How much higher depends on how much Other Products revenue shifted from other accessories to the Watch. Here’s what we know based on past performance:
  • The segment was on a y-o-y decline of approximately $200 million prior to the Apple Watch launch
  • If we assume a similar decrease this quarter, Watch revenue was approximately $1 billion.
  • This figure only results in more than 2.5 million units if the Apple Watch Sport has a 75% or greater share of the product line’s revenue.
With reports that the $10,000+ Apple Watch Edition has sold out in China, this is unlikely to be the case.

Apple-Watch-Edition.pngThese figures mean that Apple Watch sales to date are most likely between 2 and 2.5 million. This makes it the most successful smartwatch launch to date, with no other launches coming close in a comparable time period. It also means that Apple’s justification for obfuscating the figures, that of giving information to their competitors, is not relevant because there is no other smartwatch in the market that can ship comparable sales volume. The Moto360 is the closest, but even that failed to sell more than 1 million in the first 9 months.

The Apple Watch is in a class of its own at the moment, with no comparable rival in terms of sales. Hiding the number of shipments only gives the appearance of being able to cloak disappointing sales, which is the message investors seemingly took away from the earnings call, with shares falling by 7% despite a 35% y-o-y increase in iPhone sales. Displaying the success of the Watch in stark figures would have allayed investor concerns and given Apple more credibility in a new space where it is the clear leader.