Apple Watch, AirPods drive Wearables rev 70%, outpacing size, growth of Amazon ads, Google...

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in Apple Watch
Apple is criticized for making much of its revenues from one hit product: iPhone. However, its newest foray into Wearables has not only become its fastest-growing revenue source behind iPhone, but is also larger and growing more rapidly than other top tech firms' hyped future growth segments, such as Amazon's ads business, Google's Cloud and Alphabet's Other Bets.

Apple Watch Series 3

Apple is dominating Wearables like iPad in tablets

Apple just reported that its revenue growth from Wearables was driven by strong sales of Apple Watch. Its chief executive Tim Cook noted that the newly launched Apple Watch Series 3 models helped Apple post its best quarter of watch sales ever, with unit sales doubling over last year's sales of Series 2 models.

Apple Watch has also consistently reached 50 percent growth in both units and revenue for the fourth consecutive quarter, highlighting a solid base of demand for the company's highly personal, ultra mobile and super integrated Wearables.

Combined with sales of AirPods and Beats headphones, revenue in the Wearables category reached 70 percent growth over the year-ago quarter.

AirPods


Apple includes Wearables sales in its Other Products category, a shift that was criticized when it was initiated (just prior to the launch of Apple Watch) because it made it harder to determine the number of watches Apple was actually selling each quarter.

Critics have sought to portray Apple Watch as a disappointing failure for years, but it has emerged--not just as a viable contender among a series of smartwatch rivals who were already entrenched in the market for years before Apple arrived--but as the world's leading intelligent wearable device in any category, worldwide.

Ben Bajarin of Creative Strategies, who has built a solid reputation for sober, no-nonsense analysis of trends in consumer technology, noted on Twitter that Apple now has "~75 percent of the wearables market (not just smartwatches)" and that Apple Watch growth of more than 50 percent YoY "could mean they sold 9-10M in December Q."

Wearables have Apple a head in the Clouds

Apple's Wearables are a major contributor to its Other Products category (which also includes Apple TV, iPods and accessories). It grew from $4 billion in the year-ago holiday quarter to $5.5 billion in this year's FQ1.Apple's "Other Product" sales are more than five times greater than Google's cloud business, larger than Microsoft's Azure public cloud, and even bigger than Amazon Web Services

By way of comparison, Apple's "Other Product" sales are more than five times greater than Google's cloud business, larger than Microsoft's Azure public cloud, and even bigger than Amazon Web Services, which excited the market this quarter by growing at a more leisurely 44.6 percent to reach "just" $5.11 billion in revenue.

And while AWS was launched in 2006 (making it a nearly 11 year old effort) the growth of Apple's Wearables is a phenomenon triggered by Apple Watch in 2015 and AirPods last year.

"There are few enterprise franchises that are operating at an annual run rate approaching $20B in scale yet still delivering high growth in excess of 40 percent," KeyBanc analysts led by Edward Yruma wrote in a Jan. 28 note.

He was talking about Amazon Web Services, but that comment could also be applied to Apple's Other Products, a segment largely unheeded by analysts because it lives under the shadow of blockbuster iPhone sales despite its size and growth.

Apple's "Other" bets paying out 3x Amazon's, 13x Alphabet's

In parallel, Amazon's own "Other" business segment, which is primarily advertising (along with co-branded credit cards), grew by "just" 60 percent YoY to reach $1.7 billion in quarterly revenue--an important initiative but still just a third the size of what Apple identifies as its "Other Products."

Google's "other revenues" in the quarter (outside of Google ads, where it makes virtually all of its money) only amounted to $4.7 billion, YoY growth of only 37.6 percent.

While Apple is castigated for making "all of its money from iPhones," it has four other multi-billion dollar business segments that each earns far more than Google's entire non-ads business: $8.5 billion from Services, $6.9 billion from Macs, $5.9 billion from iPad and $5.5 billion from Other Products including new Wearables.

Beyond that, under Google's parent umbrella, Alphabet's "Other Bets," (the group of moonshots that are supposed to be delivering innovation and driving new growth opportunities as Google's ads get more expensive to sell and are encroached upon by Facebook and Amazon) amounted to just $409 million in revenues.

That's small potatoes for a multinational mega-corporation: just 56 percent growth representing $147 million in new revenues over the year-ago quarter. Apple's Other Products grew by $1.5 billion, more than ten times the growth of Alphabet's Other Bets, and 13 times its total revenue.

Yet Alphabet is currently valued at 38.9 times its earnings, in large part because investors think there is a lot of potential for future growth. Apple is demonstrating the actual capability of creating entirely new fields of growth with real revenues on the scale of an order of magnitude greater, yet investors are currently valuing Apple at just 18.2 times its earnings. If Apple were priced similarly to Alphabet, its shares would be trading at around $360, rather than its current price of $168.

The only relevant Wearable

Further--in stark contrast to Amazon's efforts to rival Google and Facebook into advertising, or Google's efforts to battle Microsoft and Amazon in cloud services--compared to Apple's direct competitors, rival sales of Wearables barely exist at all, and show little potential for growth or offering any real challenge.

Google's Glass; VR helmets from Samsung, HTC and others and various attempts to launch a new smartwatch or Bluetooth headsets have all been largely profitless flops, distributing relatively small numbers of expensive, subsidized devices to enthusiasts who don't stay interested for very long.

New attempts by Garmin, Fitbit and Fossil to get into the "smart" wrist Wearables category, along with longer-term efforts by Samsung's Galaxy Gear, the LG Watch and other collaborations with Google's Android Wear initiative (including Asus ZenWatch, Huawei Watch and Lenovo Moto 360) have all failed to attract much attention. Apple's success with Apple Watch has created a critically important technology portfolio that no other firm has

Beyond just entering an established market for smartwatches--that had been replete with various offerings by a number of solid competitors--and taking everything, not by manipulating market supply like Microsoft or stealing from rivals like Google, but by simply by offering a dramatically better product, Apple's success with Apple Watch has created a critically important technology portfolio that no other firm has.

Today's Wearables are just the beginning

Apple Watch isn't just miniaturized smartphone hardware. It also involves a development platform for third-party integration and, more importantly, tight integration with other Wearables, mobile devices and computers in the form of Apple's Continuity.

Apple still has room for integration improvements. Invoking "Hey Siri" while wearing an Apple Watch and holding an iPhone will likely result in parallel answers, for example. But no other company has developed a solid ecosystem already in broad use, enabling things like letting users change the volume of their AirPods using Apple Watch, while actually streaming audio from their iPhone.




This sort of "magical" interaction creates a real barrier for rivals seeing to enter the game as late as Apple did. Further, Apple's work in scaling down Apple Watch's S-series internals, AirPod's W-series wireless components, the development of water resistance, "magical" proximity detection, authentication and other custom technologies have already been paid for across sales of millions of Wearables already sold. Now it's paying off again as work on Wearables trickles upward to enhance Apple's flagship iPhone X and its lineup of Macs.

Google and Samsung are both still struggling to catch up in producing a competitive smartphone processor, let alone being able to take on the speculative design and manufacturing of very large scale integrated components suitable for Wearables, given their inability to find a real market for the failed products they did bring to market. Apple is massively invested in taking on the next big shift in mobility with Wearables while Android makers (and Google itself) retreat back to making good-enough phones

As electronics scale down to boost our connectivity and productivity in new ways--creating bionic enhancements that can allow us to see and hear better; health monitoring wearables that track acute health issues and watch for unanticipated problems, and entertainment devices that project augmented or virtual reality experiences and envelope us in sound--the company that is laying the foundation for these Wearables is far ahead of other companies still focused on trying to build smartphones that might someday return to sustainable profitability.

Just over a decade ago, Apple was focused on building the next generation of mobiles while Microsoft's PC makers were contentedly building good-enough conventional PCs. Today, Apple is massively invested in taking on the next big shift in mobility with Wearables while Android makers (and Google itself) retreat back to making good-enough phones. The consequences will again be staggering.

Apple's increasingly powerful Continuity

At this point, trying to catch up to Apple in Wearables is like trying to catch up to Apple in MP3 players after the iPod redefined personal audio as also involving tight integration with the digital hub of iTunes and its Music Store of content, including Podcasts and iTunes U.

By 2006, five years after iPod was introduced, not even Microsoft could build and market its Zune as a successful music device in the face of Apple's popularity and integrated features and services. Microsoft finally gave up after five years of intense, expensive Zune efforts to muscle into Apple's music business.

Apple has now been selling Apple Watch for nearly three years, with no competitors making any dent. Its expansion into Wearables last year with AirPods (and other W1-equipped Beats headphones) has also found no serious competition but instead has threatened the existing sales of specialized audio makers.

HomePod


Now, Apple is releasing HomePod as a new integrated device. It's not a Wearable but does boost the ecosystem supporting Wearables like Apple Watch. In fact, its marketing images commonly portray HomePod in a room where the only other devices visible are wrist-worn Apple Watches. The ecosystem links stitching together Apple's Wearables, Home and Mobile devices will increasingly be more difficult for rivals to challenge

Together with Apple TV, HomePod appears poised to establish a second major category of Other Products connected to Wearables, but integrated into the home together with other HomeKit integrated devices.

Again, the ecosystem links stitching together Apple's Wearables, Home and Mobile devices will increasingly be more difficult for rivals to challenge, because those competitors are effectively trying to only sell phones (like Google's Android partners) or only sell conventional PCs (like Microsoft's Windows partners).
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Comments

  • Reply 1 of 28
    Despite being a Mac user since 1992 I came late to the game with my first iPhone (1 year ago) and Apple Watch 3 (6 months ago). I thought my phone was the game changer for viewing around fifty received e-mails and text messages a day... but the Watch has proven far handier where I can be alerted to, or dismiss whatever, by simply raising my wrist and touching a button... leaving the phone in my pocket much of the day.
    daventmaycincymacmacxpresswatto_cobraDon.Andersenmmatzjony0
  • Reply 2 of 28
    MacProMacPro Posts: 16,938member
    Great article.  It's so strange how every other publication I can find seems to look for anything negative they can say about Apple.  Just weird.
    racerhomie3BluntStrangeDayswatto_cobraDon.Andersen
  • Reply 3 of 28
    So this is why Amazon stock is up 6% this morning and Apple is down 2%? At the rate things are going Amazon is going to be the first company to 1T valuation. Also since when does Wall Street care about Amazon’s ad business? You know it is possible to write a positive story about Apple’s ‘other’ segment without dinging it’s competitors.
  • Reply 4 of 28
    davendaven Posts: 448member
    Despite being a Mac user since 1992 I came late to the game with my first iPhone (1 year ago) and Apple Watch 3 (6 months ago). I thought my phone was the game changer for viewing around fifty received e-mails and text messages a day... but the Watch has proven far handier where I can be alerted to, or dismiss whatever, by simply raising my wrist and touching a button... leaving the phone in my pocket much of the day.
    Pretty much the same here. My one and only iPhone is the 5s I bought months after the launch. I picked up an Apple Watch 3 GPS at the end of December after reading an article about heart monitoring. As I've had heart attacks, I thought it would be useful for that but wasn't expecting to use it for much more. I've been pleasantly surprised at how much I use it as a timer, to turn on/off my Phillips Hue lights, movement tracking, Apple Pay, notifications, etc. and now my phone sits in my pocket a lot more too.
    fotoformatchristopher126watto_cobraGeorgeBMac
  • Reply 5 of 28
    blastdoorblastdoor Posts: 1,742member
    Yeah, Apple is doing a good job here. 

    In hindsight, I think perhaps the thing that maybe Apple should not have done when launching the Watch was to focus so much on third-party apps. I love my first generation watch, but I find very little use for third-party apps. The watch is particularly great for fitness tracking, notifications, and time-related functionality. Sometimes it's also nice to use it as a remote control for other apple products. If Apple had focused less on third-party apps and more on just getting the core functionality working better/faster (as eventually did happen with OS updates), the Watch might have come out of the gate a bit stronger. 

    But whatevs... hindsight is 20/20, and the Watch is on the right track now. 





    watto_cobra
  • Reply 6 of 28
    tmaytmay Posts: 2,302member
    So this is why Amazon stock is up 6% this morning and Apple is down 2%? At the rate things are going Amazon is going to be the first company to 1T valuation. Also since when does Wall Street care about Amazon’s ad business? You know it is possible to write a positive story about Apple’s ‘other’ segment without dinging it’s competitors.
    I confess that I wasn't even aware that Amazon had an ad business until a short time ago, but I do know that I search for products first on Amazon, or I prefer my Google search results that link to Amazon. I did read that Amazon's ad business was having an impact on Google's ad business, though I'm not aware of how much.

    Wall Street likes moats and monopolists, and they don't think that Apple has a proper moat.
    edited February 2 watto_cobraLukeCage
  • Reply 7 of 28
    tmay said:
    So this is why Amazon stock is up 6% this morning and Apple is down 2%? At the rate things are going Amazon is going to be the first company to 1T valuation. Also since when does Wall Street care about Amazon’s ad business? You know it is possible to write a positive story about Apple’s ‘other’ segment without dinging it’s competitors.
    I confess that I wasn't even aware that Amazon had an ad business until a short time ago, but I do know that I search for products first on Amazon, or I prefer my Google search results that link to Amazon. I did read that Amazon's ad business was having an impact on Google's ad business, though I'm not aware of how much.

    Wall Street likes moats and monopolists, and they don't think that Apple has a proper moat.
    Wall Street considers Apple to be in the gadget business and thinks someone else is going to come along and create a better gadget. Or Apple’s gadget will go out of fashion and people will move on to something else. There’s little Tim Cook or any other Apple exec has done to change that perception or to successfully argue that Apple does have a proper moat.
    edited February 2
  • Reply 8 of 28
    daven said:
    Despite being a Mac user since 1992 I came late to the game with my first iPhone (1 year ago) and Apple Watch 3 (6 months ago). I thought my phone was the game changer for viewing around fifty received e-mails and text messages a day... but the Watch has proven far handier where I can be alerted to, or dismiss whatever, by simply raising my wrist and touching a button... leaving the phone in my pocket much of the day.
    Pretty much the same here. My one and only iPhone is the 5s I bought months after the launch. I picked up an Apple Watch 3 GPS at the end of December after reading an article about heart monitoring. As I've had heart attacks, I thought it would be useful for that but wasn't expecting to use it for much more. I've been pleasantly surprised at how much I use it as a timer, to turn on/off my Phillips Hue lights, movement tracking, Apple Pay, notifications, etc. and now my phone sits in my pocket a lot more too.
    Same here... iPhone 5S and Watch 3 GPS... and I'm also monitoring my health and daily exercise regime having had a totally unexpected heart attack 4 years ago! Surprisingly, my daily usage only depletes the Watch 3 battery on average by about 40%... and as it recharges back to 100% in about 30 minutes, it's only off my wrist during my morning shower and first coffee brew!
    watto_cobraGeorgeBMac
  • Reply 9 of 28
    As far as Wall St is concerned, Apple is old news.
    They seem to be betting on Amazon becoming the first $1T company. They are their new darling.

  • Reply 10 of 28
    blastdoor said:
    Yeah, Apple is doing a good job here. 

    In hindsight, I think perhaps the thing that maybe Apple should not have done when launching the Watch was to focus so much on third-party apps. I love my first generation watch, but I find very little use for third-party apps. The watch is particularly great for fitness tracking, notifications, and time-related functionality. Sometimes it's also nice to use it as a remote control for other apple products. If Apple had focused less on third-party apps and more on just getting the core functionality working better/faster (as eventually did happen with OS updates), the Watch might have come out of the gate a bit stronger. 

    But whatevs... hindsight is 20/20, and the Watch is on the right track now. 





    Good point...I don't think I use any third party apps on my watch...primarily using it for running and looking at the temp. I am using it as an alarm clock more. I like the tone of the alarm better than what's on the iPhone! :) 
    watto_cobra
  • Reply 11 of 28
    Good Article.
    The W1 is definitely a game changer in headphones.
    watto_cobra
  • Reply 12 of 28
    FolioFolio Posts: 74member
    Thank you, article a refuge of sanity in a particularly crazy day.

    The whole "race" to US$ 1 trillion market cap is rather misleading click bait. Consider Amazon never once has bought back shares.... Apple will have soon bought back what $300 Billion... Saudi Arabia's Aramco could easily instantly surpass depending on IPO... Besides the history of past market cap leaders ain't pretty. I'm hoping Apple bucks the trend of GE, IBM, GM, US Steel, etc.
    tmaywatto_cobraDon.Andersen
  • Reply 13 of 28
    tmaytmay Posts: 2,302member
    tmay said:
    So this is why Amazon stock is up 6% this morning and Apple is down 2%? At the rate things are going Amazon is going to be the first company to 1T valuation. Also since when does Wall Street care about Amazon’s ad business? You know it is possible to write a positive story about Apple’s ‘other’ segment without dinging it’s competitors.
    I confess that I wasn't even aware that Amazon had an ad business until a short time ago, but I do know that I search for products first on Amazon, or I prefer my Google search results that link to Amazon. I did read that Amazon's ad business was having an impact on Google's ad business, though I'm not aware of how much.

    Wall Street likes moats and monopolists, and they don't think that Apple has a proper moat.
    Wall Street considers Apple to be in the gadget business and thinks someone else is going to come along and create a better gadget. Or Apple’s gadget will go out of fashion and people will move on to something else. There’s little Tim Cook or any other Apple exec has done to change that perception or to successfully argue that Apple does have a proper moat.
    Why should Apple have to make that argument? It would fall on deaf ears anyway.

    Wall Street cannot or will not believe that Apple, creator of iPod, and iPhone, can repeat their success with a new product category. Yet here Apple is, dominating the wearables market.
    StrangeDaysrandominternetpersonwatto_cobraDon.Andersen
  • Reply 14 of 28
    tzeshantzeshan Posts: 1,589member
    So this is why Amazon stock is up 6% this morning and Apple is down 2%? At the rate things are going Amazon is going to be the first company to 1T valuation. Also since when does Wall Street care about Amazon’s ad business? You know it is possible to write a positive story about Apple’s ‘other’ segment without dinging it’s competitors.
    You are treating Amazon same as media attacking Apple ignoring things like this article points out. Amazon is up because it is able to maintain over 30% growth in the last quarter. 
  • Reply 15 of 28
    FolioFolio Posts: 74member
    Facebook has gotten over the MySpace analogy. In terms of a moat or not, it seems Apple still suffers from Nokia-Blackberry Syndrome. And it's lumped in with cyclical hardware makers like Hewlett-Packard. Maybe potential to change later in 2018 when Wall Street sectors will be rejiggered...FB, GOOGL joining DIS and ATT etc in Communications Sector.

    Perhaps opportunity for future AI piece: whether or not Nokia-Blackberry Syndrome fears are valid?
    watto_cobrarogifan_new
  • Reply 16 of 28
    tzeshantzeshan Posts: 1,589member
    As far as Wall St is concerned, Apple is old news.
    They seem to be betting on Amazon becoming the first $1T company. They are their new darling.

    Amazon is the last hype Wall St is pushing. It may never happen due to rising interest rates. 
  • Reply 17 of 28
    So this is why Amazon stock is up 6% this morning and Apple is down 2%? At the rate things are going Amazon is going to be the first company to 1T valuation. Also since when does Wall Street care about Amazon’s ad business? You know it is possible to write a positive story about Apple’s ‘other’ segment without dinging it’s competitors.
    Why don't you find some AI model and run your ideas through it to distill your great advice so you can apply it to the comments you post in the forum here. 


    christopher126fastasleepwatto_cobra
  • Reply 18 of 28
    Very happy to see this as a long-APPL investor. My only wishes are: A super-aggressive expanding of speakers ecosystem. Need more options including a tie-in with surround sound for TV.
    patchythepiratewatto_cobra
  • Reply 19 of 28
    BluntBlunt Posts: 158member
    MacPro said:
    Great article.  It's so strange how every other publication I can find seems to look for anything negative they can say about Apple.  Just weird.

    It has allways been that way. They just can't stand Apple. The Watch is a failure, Apple lost their cool, the iPad is a useless toy the iPhoneX does not sell, Google play wiil be bigger in a few years, etc. etc. Back in the days they talked crap about Apple but now we are in the clickbait area and there is no end in sight.
    watto_cobra
  • Reply 20 of 28
    So this is why Amazon stock is up 6% this morning and Apple is down 2%? At the rate things are going Amazon is going to be the first company to 1T valuation. Also since when does Wall Street care about Amazon’s ad business? You know it is possible to write a positive story about Apple’s ‘other’ segment without dinging it’s competitors.
    The real question is why it bothers you and others so much when DED compares Apple to its competitors? Most peculiar....
    patchythepiratefastasleepwatto_cobrammatz
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