Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
AirPods-as-a-Service
Apple (AAPL) will report results for its fiscal first quarter after the bell today.
Wall Street expects holiday-quarter earnings per share to hit $4.56 on revenue of $88.38 billion. Revenue from Apple’s closely-watched services segment should be right around $13 billion, according to estimates from Bloomberg.
And while the Street continues chasing Apple shares higher and pronouncements about the next iPhone “supercycle” creep back into the conversation, the most compelling part of Apple's holiday quarter and the year ahead is in your ear.
Back in November, Apple analyst Neil Cybart of Above Avalon wrote that AirPods are becoming a platform, arguing the in-ear buds have "evolved from an iPhone accessory into the early stages of a platform well positioned to reshape the current app paradigm for the wearables era."
Just look around and you'll see this happening in real-time.
Cybart estimates that AirPods revenue in 2019 will be around $7.5 billion, with AirPod sales likely exceeding 10 million units per quarter "for the foreseeable future."
During the holiday shopping season, the AirPods Pro model was sold out across retail channels. And with over 60 million units sold since inception, AirPods are currently enjoying a sales trajectory similar to that seen by the iPhone after its launch.
But comparisons to the iPhone might understate the true potential of the AirPod’s future.
“When contemplating AirPods unit sales trends going forward, too many people are stuck in a mobile mindset,” Cybart wrote.
“Instead of seeing someone buy and use just one pair of AirPods, we may see a new kind of usage pattern develop in which a growing percentage of AirPods owners will use more than one pair of AirPods. This will help boost AirPods unit sales.”
And while much has been made of Apple’s push to publicly emphasize the growth of its services business — and we’d expect analysts to probe management for details around the launch of Apple TV+ during this evening’s call — the AirPod looks like an old school Apple product home run.
AirPods are displayed as Apple Inc CEO Tim Cook makes his closing remarks during an Apple media event in San Francisco, California, U.S. September 7, 2016. REUTERS/Beck Diefenbach
Overall, Apple’s quarterly report should serve as something like a coronation for a company that defined the 2019 bull market rally.
On January 2, 2019, Apple announced that its holiday-quarter results would disappoint; shares fell 9.96% the following day and closed at $142.19 per share. As we wrote at the time, this guidance seemed to confirm the market’s biggest fear: that the U.S.-China trade war was starting to take a serious bite out of America’s biggest businesses.
From that low, the stock has more than doubled — on Monday, the stock closed at $308.95. Apple's market cap is now north of $1.3 trillion.
During a year in which the market gained 30% and strategists pivoted from fearing the worst about the global economy to calling for a new leg to the post-crisis bull market, the rally in Apple shares often served as a guiding light for the market. And the average Wall Street price target on Apple shares has risen in kind — from around $183 in early January 2019 to $301 today, according to data from Bloomberg.
Of course, Apple’s services emphasis is compelling for some strategists and investors who will more highly value the recurring revenue stream from this business. And the story driving Apple’s 2019 rally has morphed at various points — from a bet on services, to buybacks and dividends, to the stock just being cheap relative to peers.
But ultimately, Apple is a consumer hardware company. And in 2019, Apple released a new iPhone that didn’t face a supply shortage and enjoyed the continued growth of an entirely new category of must-have hardware with the AirPod.
FILE- In this Aug. 24, 2015, file photo specialist Frank Masiello is reflected in his screen on the floor of the New York Stock Exchange. The bond market is getting another whiff of a recession Bonds are supposed to be the boring corner of the finance world, but even high-flying stock investors stop and pay attention when they fall into a particular, concerning pattern. It’s called an “inverted yield curve,” and it happens when investors are willing to accept lower yields for long-term U.S. government bonds than for short-term debt. It’s been a relatively reliable predictor for recessions, and it’s happening again.(AP Photo/Richard Drew, FIle)
