This holiday shopping season will be an important test for Apple (NASDAQ:AAPL) since it will be the first shopping season for Apple Watch. Apple doesn't enter new product categories very often, but when it does it jumps in with both feet and always makes a splash.
As the first new category that Apple has entered in the Tim Cook era, the wearable device is especially symbolic as to how well Apple can innovate post-Jobs. With Apple already one of the top players in the wearables market, its performance will also be representative of the broader product category.
The good news is that retailers are already aggressively promoting Apple Watch, offering the device with hefty Black Friday discounts along with other gadgets, and IBM Watson says Apple Watch is at the top of many shopping lists. If you wanted to be cynical, you might argue that Apple's distribution channels and retail partners are trying to clear out inventory if sales thus far have been underwhelming. Investors won't know for sure since Apple won't disclose anything. Apple doesn't even indicate whether or not Apple Watch channel inventory is within management's target range like it does for other product categories.
Let's see what the Street has to say.
Word on the Street
FBR Capital analyst Daniel Ives is out with a research note after conducting some store checks during the Black Friday weekend. Ives says that consumer interest for Apple Watch at retail stores is on the rise. The analyst is modeling for Apple Watch to sell 5 million to 6 million units during the December quarter.
Apple has a very strong chance to drive adoption of wearable technology in the years ahead, an opportunity that Ives estimates at over $20 billion over the next three years. As the installed base grows and Apple's overall ecosystem strengthens, enterprise opportunities will subsequently arise.
For what it's worth, Ives believes that Apple has shipped 6 million Apple Watch units to date following the April launch. Apple has said that the device was severely supply constrained during the first two months of availability, however.
Reading between the lines
If Ives' models prove accurate, then Apple will have shipped upward of 12 million Apple Watch units in 2015. Compare that to the 6.8 million total smartwatches sold in 2014 or the 18.4 million fitness trackers and smartwatches that Fitbit (NYSE:FIT) has sold over the past four quarters, and you can see that Apple is quickly becoming an influential player. Fitbit is currently the wearables market leader, but Apple threatens to dethrone the freshly public company. This is partly why Fitbit is aggressively moving upmarket into smartwatch territory by adding more and more features to its devices.
I believe that Apple Watch average selling prices are likely in the range of $450 to $500, which would imply Apple Watch revenue of $2.3 billion to $3 billion in the December quarter, based on Ives' unit estimates. Even though that total isn't especially significant financially relative to Apple's overall results, it would be a huge uplift for Apple's other products category. Other products generated $3 billion in revenue last quarter, so if Apple sells $3 billion worth of Watches alone it will enjoy a healthy jump.