Sometimes, investors focus too much on consensus estimates and expectations. Even if a company delivers objectively solid results, it can sometimes still be classified as a "disappointment." Is that what could happen to Apple's (NASDAQ:AAPL) new Apple Watch?
KGI Securities analyst Ming-Chi Kuo has put out a fresh research note on the new smartwatch, and in some respects the language is a tad pessimistic. Let's take a look at the good and "bad" of the new information.
Falling short of imaginary numbers
Kuo believes that Apple Watch demand is beginning to slow down following the initial launch. As a result, he is reducing his estimate on unit shipments in the third quarter by 20%-30%, expecting the Mac maker to ship 5 million-6 million Apple Watches. Total Apple Watch units in fiscal year 2015 are expected to come in around 15 million, according to Kuo's number crunching.
Compare that to the current consensus estimates of 20 million-30 million, and investors could potentially end up "disappointed." If so, that would just be silly.
For starters, when talking about such a young market, Wall Street estimates are even less useful than normal. Sure, some analysts may have sound methodologies. For example, extrapolating theoretical attach rates based on the current estimated install base seems reasonable enough (this is how Morgan Stanley analyst Katy Huberty arrived at her first-year estimate of 30 million units -- recently raised to 36 million units). But at the end of the day, arithmetical numbers games fail to capture the granularity of a rapidly evolving and nascent market.
Besides, all of the Street's estimates have been floating around since before Apple Watch even shipped, making it impossible to know how consumers would receive the device since no one had truly experienced the new gadget. For what it's worth, reviews have been fairly mixed. If we take a step back, 15 million units should be considered an unqualified success.
Let's get this market started
For context, there were just 6.8 million smartwatches sold throughout all of 2014 at an average selling price of $189, according to industry researcher Smartwatch Group. That was up from 3.7 million smartwatches shipped in 2013 at an average selling price of $225. If Apple is able to approach 15 million units this year, it will single-handedly more than double the entire market's volume.
Furthermore, Apple Watch starts at $350, well above the 2014 ASP. Kuo believes that demand is concentrated on the 42mm models, which he believes comprise 60%-70% of production. One theory is that Apple Watch is appealing to men more than women. That has positive implications on Apple Watch's ASP, since the larger models typically cost $50 more than their 38mm counterparts.
Irrespective of Street estimates, Apple is undeniably jump-starting the smartwatch market.
15 million is a lot of smartwatches
It's worth pointing out that Kuo's estimates are for Apple's fiscal year 2015, which ends in September. The company's total for calendar year 2015 will be even greater.
By the end of fiscal year 2015, Apple Watch will have been shipping for less than two full quarters. By comparison, Apple shipped 7.5 million iPads in the tablet's first two quarters (the iPad launched in early April 2010), making it the most rapidly adopted product in consumer electronics history. Hitting 15 million Watches would be even more impressive when you consider the supply constraints and prolonged shipping times that Apple Watch still faces.
Entering another new product category and shipping twice as many units as Apple's last new product category in approximately the same amount of time would be quite an accomplishment.
Investors can expect to get some official data on Apple Watch sales when Apple releases earnings in July. How many millions of smartwatches do you think it will sell in the June quarter?