Source: Apple.
Now that Apple (AAPL 0.01%) has finally detailed its much-awaited Apple Watch, Wall Street analysts and the media are all over the product, trying to figure out how many devices Apple will sell in the coming months. The bad news is that it's almost impossible to make an accurate forecast about Apple Watch sales, or how this new product could affect the company from a financial point of view.
However, that's no reason to despair. The good news is that Apple is still positioned for growth in the coming years, no matter how many Apple Watch units it sells over the short term.
Time to watch the Apple Watch
Apple Watch will be available on April 24 to customers in Australia, Canada, China, France, Germany, Hong Kong, Japan, the U.K., and the United States. Now that the product has been formally announced, and that Wall Street knows both the initial availability and price range, analysts are eagerly consulting their financial crystal balls, trying to find out how many devices the company will sell and how much money the product will bring in.
According to data from an analysts polled by Fortune, Wall Street analysts are on average forecasting 22.47 million units during 2015. However, there's a lot of disparity in those estimates. The most conservative forecast is from Gene Munster, at Piper Jaffray, who's forecasting 8 million units. On the other end of the spectrum, Trip Chowdhry, from Global Equities Research, is expecting 41 million units.
It's only natural to see such a wide range of estimations. There's no sales data from prior quarters to provide some context, and smartwatches are still an emerging product category. With its enormous brand power and loyal customer base, Apple has the potential to turn smartwatches into a product for the masses, but it could take considerable time for Apple Watch to convince the non-believers.
In any case, Apple is forecasted to produce a gargantuan $225.45 billion in total revenues during the fiscal year ending in September. Even if the company sells lots of Apple Watches, this product will hardly have a big impact on the overall revenue mix.
Apple is still positioned for growth
Fortunately for investors in Apple stock, Apple doesn't need much financial contribution from Apple Watch in the short term. The company reported a 57% year-over-year sales increase from the iPhone segment during the last quarter. While many analysts have long forecasted a slowdown in iPhone sales as the smartphone market matures over time, Apple keeps proving that customers are still willing to open their wallets as long as the new iPhone models are compelling enough.
iPhone unit sales grew 97% in BRIC countries during the December quarter, with sales doubling in China, Apple's second largest market for smartphones. The holiday quarter is particularly important from a seasonal point of view, and the introduction of the much successful iPhone 6 and iPhone 6 Plus models provided a big boost to sales during the last quarter, so growth will most likely slow down in the near future. However, healthy iPhone demand, especially in emerging markets, bodes well for Apple over the middle term.
In addition, Apple's gigantic share buyback program is a powerful venue to reduce its outstanding share count and increase earnings per share. Apple reduced its weighted diluted share count by more than 9% during the last year, so earnings per share are growing much faster than net income.
The company produced nearly $30.5 billion in free cash flow during the last quarter, while share buybacks absorbed only $5 billion of that money. Besides, Apple holds $178 billion in cash and liquid investments on its balance sheet. This shows that the company has more than enough financial strength to continue making big share buybacks over the coming years.
Why Apple Watch matters
Don't get me wrong: Apple Watch is very important. After all, this will be the first time the company enters a new product category since the iPad was launched in 2010. Besides, Apple Watch is Apple's first big innovation since Steve Jobs died in 2011. For this reason, it will be crucial to evaluate whether the company still has what it takes to disrupt different industries and bring successful new products to the market.
However, the key to Apple Watch is not how many devices Apple will sell in the coming quarters. It's all about the customer experience and strengthening Apple's ecosystem of products, services, and applications over the long term.
As long as Apple Watch measures up to Apple's brand value and reputation for quality, customers will come over time, even if it takes a few years until wearable devices become mainstream products. In the meantime, strong iPhone sales and big share buybacks should be enough to keep Apple's earnings growing at a considerable speed.
