Please ensure Javascript is enabled for purposes of website accessibility

Apple's Wearables Business Is Crushing It

By Ashraf Eassa – May 4, 2019 at 12:35PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This small but fast-growing segment continues to deliver.

One area where Apple (AAPL -0.66%) is undoubtedly leading is in the world of wearable computing. The company's Apple Watch lineup dominates the smartwatch market in terms of both unit shipments and total revenue, while its AirPods line of wireless earbuds have simply been crushing it. 

Apple's wearables efforts have been an unqualified success thus far. Based on what the company's top brass had to say on Apple's most recent earnings call, the momentum on that front is alive and well. Let's take a closer look, shall we?

A woman wearing a pair of AirPods.

Image source: Apple.

Super fast wearables growth

According to Apple CEO Tim Cook, the company's wearables business saw "growth near 50%" on a year-over-year basis last quarter. 

"The business is now about the size of a Fortune 200 company, an amazing statistic when you consider it's only been four years since we delivered the very first Apple Watch," Cook explained.

Apple's wearables, home, and accessories offerings together generated $5.1 billion in revenue last quarter, growing 30% year over year. That growth, Apple CFO Luca Maestri noted, was "fueled primarily by the strong performance of our wearables business, which grew close to 50%." 

Breaking that down a bit, Maestri explained that the Apple Watch product line is "reaching many new customers, with three-quarters of purchases going to customers who have never owned an Apple Watch before." As far as AirPods go, the executive added that interest in the latest iteration of the product "has been off the charts, and we're working hard to catch up with incredible customer demand." This suggests that demand is outstripping supply for the product right now. 

This is a great business for Apple. 

Growing in importance

Although the iPhone still accounts for the majority of Apple's revenue, the wearables, home, and accessories segment is an increasingly material part of the business. 

Last quarter, wearables, home, and accessories products made up roughly 8.8% of Apple's overall revenue. For the first six months of fiscal 2019, that figure was a little over 8.7%. Moreover, since this segment is growing faster than Apple as a whole -- a phenomenon that I expect to continue for a while yet -- it should become even more important to the company over time. 

What's particularly encouraging about this business is that it still seems to have a long runway. Apple has an enormous user base, and only a fraction of those users have purchased Apple Watches and AirPods. As adoption continues to grow -- something that's highly likely to happen, considering that Maestri claimed that 75% of Apple Watch sales last quarter were to first-time buyers -- these product categories should enjoy robust revenue growth.

An additional reason for optimism is that the installed base itself is still growing. Per Cook, "our active installed base of devices continues to grow in each of our geographic segments and set a new all-time record for all major product categories." 

That installed base growth is, as Cook said, "driving [Apple's] services business to new heights." Since Apple's key wearables products require other Apple products to function fully, that installed base trend should help boost the wearables business, too.

Investors should love it

If you're an Apple investor, the continued success of the company's wearables business should be cause for optimism. While this segment still contributes less than 10% of the company's overall revenue today, its rapid rate of growth should allow it to become much more important as time wears on. That will boost Apple's revenue and profit and, ultimately, diversify the company's revenue base.

Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and is long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$145.43 (-0.66%) $0.97

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.