It’s almost here. In fact, the tension is almost palpable. The Apple Watch, from maker of too-cool-for-school consumer technology giant Apple Inc. (NASDAQ:AAPL) arrives this month.
The pre-order date is April 10, and the Apple Watch will be available in stores on April 24.
Reviews and previews of the Apple Watch are abundant, and have been for a while. What hasn’t surfaced regarding the device is the potential impact it could have on the value of AAPL stock. That’s changing too, however, as credible sales forecasts are finally being offered.
And what can AAPL investors expect? As is the case with most devices made by the company, this one should be a relative smash hit as well. Whether it’s going to be big enough to push Apple stock noticeably higher, though, remains to be seen.
Apple Watch Sales Forecasts
The initial sales predictions of the Apple Watch vary from one observer to the next, though they’re all in the same ballpark.
Piper Jaffray analyst Gene Munster predicts AAPL could sell as many as 300,000 units on a pre-order basis, and then sell a a million over the course of its first weekend of availability. At that pace, Munster believes Apple could sell 2.3 million of the much-ballyhooed device in time to book that revenue in the quarter ending in June.
Forecasters thinking about the long term see much bigger numbers in store for the Apple watch. For instance, market research organization IDC believes AAPL will ship 15.9 million units of the smartwatch in 2015. CCS Insight is looking for sales of 20 million units by the end of the year.
Those are big numbers to be sure, but not unreasonable ones. In the last quarter of calendar 2014, Apple sold 74.5 million iPhones, most of which were the latest versions — the iPhone 6 or 6 Plus.
Impact on Apple Stock
The company doesn’t exactly detail its manufacturing costs and wholesale prices on its hardware like the iPhone, but the numbers have been estimated by some intelligent people who would have a pretty good idea of its cost. For the 16 GB iPhone 6 that sold at a retail price of $649 only costs about $200 to make.
That’s a markup of about 225% of its cost, which is a fantastic profit margin even by consumer technology standards.
Will the margins on the Apple watch be as strong? Not likely.
Aside from being a whole new product line with a much smaller production rate than the iPhone, it’s much smaller technology, and is sold at a lower price point; the Apple watch will retail at a starting price of $349. The margins on the watch could range from nil to maybe as much as $150 apiece for the average watch (though bear in mind that’s just an educated guess).
The key idea is that it’s not going to be a big money-maker for the company just yet.
As for the fiscal benefit of the device though, if the CCS Insight outlook is on target and Apple sells 20 million units this year, it’s apt to put $10 billion on the top line and as much as $3 billion on the bottom line (or next to nothing, depending on how thin those margins are). For perspective, Apple has generated $200 billion in revenue over the past twelve months, and has turned $44.5 billion of it into net income. Bear in mind, however, the CCS Insight forecast is the most optimistic one out there.
Bottom Line for AAPL
Any forecast or projection regarding the Apple watch should be taken with a grain of salt. Not only is it a new product, it’s a whole new kind of product. Other so-called smartwatches have been introduced in the past, but nothing quite like this one.
It remains to be seen whether consumers will go ga-ga over the device the way they are with their iPads and iPhones, or whether they’ll balk at the price tag of $349 and up. More likely than not, however, there are enough die-hard Apple fans to make sure the Apple watch is considered a success.
The real risk to current owners of AAPL stock, ironically, is expectations regarding the watch’s launch.
Though not by design, the hype surrounding the debut of the Apple watch may be as strong as the company has ever mustered for any of its products. That may be because it was first mentioned way back in March of 2013, giving consumers a full two years to build up the hysteria … and their expectations.
What may have largely been unrecognized about the product from the onset, though, is that it was never in a position to become bigger than the iPhone, or even the iPad (although weak iPad sales leave it vulnerable to being leapfrogged by the watch now).
There’s a distinct possibility for disappointment relative to unreasonable sales expectations, which could prove to be trouble for the value Apple stock.
Again though, that’s not the likely outcome. As was suggested, the product is already well-positioned to perceives as at least a modest win for the company even if actual sales fall short of the CCS Insight forecast.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.