On its own, AirPods could be a $175 billion enterprise

Posted:
in iPod + iTunes + AppleTV edited December 2019
If a private company was performing the way Apple's AirPods are in terms of rapid sales growth in units and revenues with strong margins, it could be valued at $175 billion next year, making it the 32nd largest company in the U.S.

AirPods Pro
AirPods Pro


Midas Kwant tweeted out his estimate, figuring that a year after launching in 2016 Apple sold 16 million AirPods, followed by 35 million last year. Kwant believes that there are an estimated 50 million to 60 million AirPods that will be sold in 2019.

In 2020, Kwant predicts Apple will sell 100 million units. At an average selling price of around $200, that's $20 billion in revenues. With a 35% net profit, that's $7 billion in annual profits. With a fairly conservative 25 P/E multiple, Kwant says that would be a $175 billion valuation.



Of course, an independent company wouldn't have Apple's instant brand appeal or global retail operations, or access to the free advertising that its installed base of users generates. It would be a tall order for any entrepreneur to create a hit pair of new headphones pairing style and high technology -- and then be able to sell it in the quantities and price Apple is.

It would also be virtually impossible for a smaller company to develop custom silicon custom-designed for a product the way Apple has with its H1 chip. The speculative investment in building custom silicon would be impossible to fund on the mere hope that customers would continue to buy twice as many units in 2020.

Apple, Beats, Spotify

That makes it impressive that Apple's executive team has added such a significant new expansion of operations on top of its existing business. The company has long sold basic headphones, but only since its acquisition of Beats Electronics has it invested in high-quality sound and innovative new audio technology that users can buy in premium devices ranging from AirPods to Beats to HomePod, along with much higher quality speakers in its iPad, iPhone, and MacBook models.

The $3 billion acquisition of Beats also gave Apple a streaming music business to offer in the model of Spotify. Without that, Apple was sitting on the stagnating music business of iTunes media downloads, which were falling out of favor with buyers. By offering a leading streaming service with Apple Music, the company retains an installed base of music consumers that Apple can market its audio hardware to.

Apple Music is often contrasted with Spotify as if the two companies are locked in a zero-sum game of subscribers. However, as with other subscription services, the more competition in and awareness of a service there is, the larger that business can become.

Additionally, the total number of paid subscribers to a service can be a poor measurement of success. For example, there's some controversy on how accurate or comparable subscriber counts are. For example, Spotify counts every potential member of a family subscription. So if a couple buys a family plan, those two people are five "Spotify users." A lot of families do have kids, but the average affluent family doesn't have three.

Also, the value of lots of subscribers is a liability when you are only losing money. That's particularly the case in the terrible business of music streaming, where customers pay very little and streaming companies seek to pay musicians as little as possible just to earn something for themselves. Spotify has yet to make any significant money from streaming, despite rapid growth in its revenues and subscribers. Yet, the company is still valued at $25 billion.


Spotify only turned a minor profit in 2019 | Source : Statista


As it did for years with iTunes, Apple can afford to run Apple Music at break-even, investing in the service as a way to protect and drive sales of its hardware.

Apple's ability to acquire Beats for $3 billion and develop it into a broad and deep series of business opportunities that include Beat's original headphones, Apple's own new HomePod, Apple Music, and the new breakout hit of AirPods is impressive. There weren't many predicting that when Apple announced its plans in 2014.
lostkiwiapplesnorangesiadlibrac101
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Comments

  • Reply 1 of 24
    SoliSoli Posts: 10,035member
    That is massively impressive. I hope we start to seeing an even greater range of options for Apple-branded headphones in the near future.
    applesnorangeslostkiwiwatto_cobrajony0
  • Reply 2 of 24
    homepod is probably not worth mentioning in this article
  • Reply 3 of 24
    thrangthrang Posts: 984member
    Back to the point of the article: I have no idea who this guy is and if the assumptions are correct, but presuming it is approximately right, it goes to show how anal-ysts often miss the larger picture with Apple. While it's technically one company's it's not difficult to view it as an amalgam of several highly successful companies with huge synergy. This allow them to adjust the dials based on product life cycles to ensure they are protected from significant downturns (political interference not withstanding)
    edited November 2019 yojimbo007cornchiplkrupp
  • Reply 4 of 24
    FolioFolio Posts: 698member
    Regardless of this guy's estimates, he brings to light that Airpods shouldn't be neglected,(overshadowed by the watch in wearables growth story). It's another reason giving Apple itself a PE of 25 or higher is warranted in this bull market. Ecosystem gets more attractive and stickier each year. Self- reinforcing spiral, from R&D to distribution, is a huge moat. Apple will disprove adage that tech companies lose vibrancy in middle age, because no one else (still) has that youthful spirit that top talent admires.
    watto_cobra
  • Reply 5 of 24
    I have to admit—the Beats acquisition looked like a lot of money for a little tech and some street cred to me (at first). 
    I’m glad I’m not making Apple’s business decisions. And I love my AirPods!
    lostkiwiCarnagewatto_cobrajony0
  • Reply 6 of 24
    It would be real funny if Apple had all this in the pipe and merely bought Beats for “brand legitimacy” when entering and reinventing by distrusting an established industry rather than entering from scratch like it’s done in every industry? Like what if that was the veneer fake street cred? That’s what I wonder about.
    watto_cobra
  • Reply 7 of 24
    radarthekatradarthekat Posts: 3,800moderator
    I’ve deleted all of the political comments.  I understand it’s difficult not to rebut comments that offend, but please refrain from continuing that thread. This just isn’t the place for it.  

    Thanks.
    (moderator)
    iobserverac101lostkiwiwatto_cobra
  • Reply 8 of 24
    What I would like to see is a round up of everybody who commented that Apple was out of its mind to pay $3 billion for the acquisition  of Beats  a few years ago. Likely a future article for DED if he did not already write one. 
    StrangeDayswatto_cobra
  • Reply 9 of 24
    SoliSoli Posts: 10,035member
    jhart376 said:
    What I would like to see is a round up of everybody who commented that Apple was out of its mind to pay $3 billion for the acquisition  of Beats  a few years ago. Likely a future article for DED if he did not already write one. 
    Those people still exist. They claim that Apple could’ve done this without Beats. The same goes for Creating Apple Music. You know who they are because they use the words ghetto and thug when talking about Beats.
    LukeCageStrangeDayswatto_cobra
  • Reply 10 of 24
    slurpyslurpy Posts: 5,376member
    jhart376 said:
    What I would like to see is a round up of everybody who commented that Apple was out of its mind to pay $3 billion for the acquisition  of Beats  a few years ago. Likely a future article for DED if he did not already write one. 
    Wasn't there some asshole called "Constable Odo" that literally racked up thousands upon thousands of posts solely attacking Apple for this, and mentioning it every single thread? Yes, there was. 
    SoliStrangeDaysPickUrPoisonwatto_cobrajony0
  • Reply 11 of 24
    MacProMacPro Posts: 19,665member
    slurpy said:
    jhart376 said:
    What I would like to see is a round up of everybody who commented that Apple was out of its mind to pay $3 billion for the acquisition  of Beats  a few years ago. Likely a future article for DED if he did not already write one. 
    Wasn't there some asshole called "Constable Odo" that literally racked up thousands upon thousands of posts solely attacking Apple for this, and mentioning it every single thread? Yes, there was. 
    Oh, I remember him.
    watto_cobra
  • Reply 12 of 24
    MacPro said:
    slurpy said:
    jhart376 said:
    What I would like to see is a round up of everybody who commented that Apple was out of its mind to pay $3 billion for the acquisition  of Beats  a few years ago. Likely a future article for DED if he did not already write one. 
    Wasn't there some asshole called "Constable Odo" that literally racked up thousands upon thousands of posts solely attacking Apple for this, and mentioning it every single thread? Yes, there was. 
    Oh, I remember him.
    Where did he go, anyway?
    watto_cobra
  • Reply 13 of 24
    Music to my ears 

    literally and figuratively 
    watto_cobra
  • Reply 14 of 24
    lostkiwi said:
    MacPro said:
    slurpy said:
    jhart376 said:
    What I would like to see is a round up of everybody who commented that Apple was out of its mind to pay $3 billion for the acquisition  of Beats  a few years ago. Likely a future article for DED if he did not already write one. 
    Wasn't there some asshole called "Constable Odo" that literally racked up thousands upon thousands of posts solely attacking Apple for this, and mentioning it every single thread? Yes, there was. 
    Oh, I remember him.
    Where did he go, anyway?


    He's probably touring as a two-piece with good ol' Sog35 in other Apple forums!

    I hope avon b7 joins them soon!!

    Solitmaywatto_cobra
  • Reply 15 of 24
    sflocalsflocal Posts: 6,070member
    MacPro said:
    slurpy said:
    jhart376 said:
    What I would like to see is a round up of everybody who commented that Apple was out of its mind to pay $3 billion for the acquisition  of Beats  a few years ago. Likely a future article for DED if he did not already write one. 
    Wasn't there some asshole called "Constable Odo" that literally racked up thousands upon thousands of posts solely attacking Apple for this, and mentioning it every single thread? Yes, there was. 
    Oh, I remember him.
    You know, there was a time many years ago when users actually contributed to healthy debate and the mods cared more about discussion than clickbait and faux-journalism.

    Constable Odo, Solipsism, Mazda3s, etc... I miss those years.  I barely contribute anymore as it just got too infested with trolls and iHaters that’s it just not worth the time and effort anymore.

    If there was a worst, it will always be Tekstud.  The original troll.
    Soliphilboogiewatto_cobra
  • Reply 16 of 24
    Let's not forget TS, always a fun-read.

    Soliwatto_cobra
  • Reply 17 of 24


    He's probably touring as a two-piece with good ol' Sog35 in other Apple forums!

    I hope avon b7 joins them soon!!

    But as annoying as he was, Sog35 was right About his AAPL forecast :)
    watto_cobra
  • Reply 18 of 24
    Carnage said:


    He's probably touring as a two-piece with good ol' Sog35 in other Apple forums!

    I hope avon b7 joins them soon!!

    But as annoying as he was, Sog35 was right About his AAPL forecast :)

    Which forecast? The one he made on a day when he was in good mood OR the one he made on a bad day for him??? I thought it was his obsession with Apple's share price and the wild mood swings depending on Apple share price lead to his removal from this forum. At least 100+ times (or was it running into 1000s?) he had said "Sack Tim Cook NOW" in this forum on his bad days. And the way he dealt with Trolls was not so funny. But when he posted about anything else, it was fairly acceptable even if others do not agree with his viewpoint.
    SolitmayCarnage
  • Reply 19 of 24
    Where is he getting the 100M prediction from? In fiscal year 2019 Apple reported $24B in revenues from the wearables/accessories category. I’m highly skeptical FY2020 will show $20B just for AirPods.  These analysts just make stuff up out of thin air and the bigger the better because it gets clicks and social media shares,
    muthuk_vanalingam
  • Reply 20 of 24
    SoliSoli Posts: 10,035member
    Where is he getting the 100M prediction from? In fiscal year 2019 Apple reported $24B in revenues from the wearables/accessories category. I’m highly skeptical FY2020 will show $20B just for AirPods.  These analysts just make stuff up out of thin air and the bigger the better because it gets clicks and social media shares,
    1) It may be his own projection. Looking at their growth since 2016 that doesn't seem unlikely, especially with the AirPod Pro reviews I've seen. 

    2) Kuo made a 100M projection for 2021 back in 2018. It's likely many others have to.
    watto_cobra
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