17 December 2014

Above Avalon: “Apple Watch Sales and Earnings Projections”

Apple Watch

I extrapolate Apple’s addressable market for Apple Watch from iOS adoption rates. I use the share of iOS devices that upgraded to the latest iOS release by the end of the first full day after release as a proxy for Apple’s most loyal customer base. I classify these users as a fair approximation of Apple’s initial addressable market for an Apple Watch. Using a 2.4-year iPhone replacement cycle, I estimate there are approximately 400 million iPhones in use today. Since there are older devices resold or passed down to children and relatives, I would label the 400M data point as a base case estimate.

Using the average between Mixpanel and Fiksu, I arrive at 13%, however Mixpanel has historically tracked closer to Apple’s reported adoption rates, therefore I increased the 13% average to 15% to reflect a greater weighting for Mixpanel. I then multiplied that percentage by the 400 million iPhones out in the wild to arrive at approximately 60M core iPhone users that serve as a prime target to sell Apple Watch (which requires an iPhone 5, 5c, 5s, 6, or 6 Plus).

Neil Cybart

Wow, I can’t decide if this estimate is pure genius or absolute bullshit!

Actually, I can decide: estimating hardware sales for a 500$ gadget based on how fast people apply free updates to their smartphones is one of the stupidest things I’ve ever read! The simple fact that the adoption rate has changed considerably between 2013 and 2014 should be a strong sign that it’s not a reliable indicator – hasn’t lost half its fans in one year, people just couldn’t update for technical reasons. And such an arbitrary cut-off: the first full day after release. I guess if you update 25 hours after release you can’t call yourself an Apple fan anymore!

I agree with the idea that the primary customers for Apple Watch will be people strongly invested in the ecosystem (because otherwise you buy an expensive piece of metal), but there are better ways to estimate that number. For example the amount of people who own both an iPhone and an iPad or Mac, or people who upgrade to the new iPhone model yearly, instead of waiting two years for their contracts to expire. That data may be harder to find, but the resulting forecast would at least make some sense.

Distribution will also be an important factor influencing sales: will the Watch be launched internationally from day one, or US only? Will it be sold exclusively in Apple Stores, with support staff guiding customers through the novel UI (more likely in the first months) or distributed through select retail partners as well? Consider how well the iPhone would sell without being promoted and heavily subsidized by US carriers. Based on this, I think the upper limit for Watch sales will hover around Mac sales – that is 3 to 5 Million per quarter.

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