Rationalizing Apple Watch Estimates

Lot’s of folks are putting out Apple Watch estimates. Mostly, these are coming from sell side analysts. I read a great deal of these notes from Wall Street analysts. Sometimes they share their reasoning, sometimes they don’t. More often than not, I disagree largely with the assumptions they make, even if I think the numbers line up.


From the list above, analyst Neil Cybart from Above Avalon laid out some of the reasoning for his estimates.

I thought it would be helpful to lay out my rationale for my estimates for calendar 2015 and a full year of sales. I’m estimating 19 million Apple Watches sold by the end of 2015 and 24 million in the full first year of sales (meaning up to April 2016). Here is some insight into how the sausage is made with those numbers.

The first thing I thought through was getting a rough estimate of how many hard core Apple enthusiasts are out there who will buy anything from Apple no matter what, just because they are fans. These are customers who are deeply loyal and will give Apple the benefit of the doubt with any product they sell. To do this, it is helpful to look at the sales figures for year one of the iPhone and the iPad. One would assume the audience who purchased an iPhone in 2007 (starting at $499) and the first iPad (also starting at $499) is a group who adopts Apple products early out of the gate, due to their loyalty and interest in the brand. iPhone year one sales (FY 08) were twelve million and iPad calendar year sales were fifteen million. Wall Street’s iPhone estimates for that year were nine million and, for the iPad, five million. Using these numbers it would seem reasonable that, at a base level and using comparable data, a 12-15m unit sales minimum is likely. However, there are other key data points to factor into, that I believe lead me to a higher number than 12-15m.

Another comparable number is first weekend iPhone sales, which were 10m with the launch of new iPhone 6 and 6 Plus last Sept. While I don’t think Apple will sell 10m Apple Watches on the first weekend, this number is comprised of a percentage of the audience I outline. That is, those who are loyal and desire to get the latest Apple products no matter what. I’d estimate on the conservative side this number is 1-2m or roughly 10-20%. Meaning, a reasonable first weekend Apple Watch estimate could be in the 1-2 million unit range. However, on the larger scale that 10m first weekend sales feeds into a larger audience who has a deep interest in Apple’s latest and greatest as a key part of the 12-15m number I referenced.

Another data point I’m using is the sales of the iPhone 6 Plus. The buyer of this product may also be much more in line with a type of customer who has an interest in the Apple Watch in year one. This customer has a higher disposable income and may be more early adopter/gadget enthusiast as a profile. My model estimates iPhone 6 Plus sales at ~18m units last quarter alone. While I am not using the total sales number as a predictor for the Apple Watch, I think that product in particular gives us some insight into a similar potential customer base for the Apple Watch, and those sales were only one quarter’s worth of data. China is also a key market for the Apple Watch and, with deep conviction, I believe the customer who purchased an iPhone 6 Plus in China during the launch quarter is absolutely a target for the Apple Watch. My estimates peg the iPhone 6 Plus at nearly 6 million units during the December quarter.

Another statistic I am using is “intent to buy”. We know to take these surveys with a grain of salt. However, the intent to buy for Apple Watch is dramatically higher than the same intent to buy panels run for both the iPhone in 2007 and the iPad in 2010. From my panel, those who said they would “definitely buy” is 14% and those who said “likely to buy” are 17%. Compared with 5% will “definitely buy” and 15% “likely to buy” for the iPhone and 6% “definitely buy” and 14% “likely to buy” for the iPad.

Apple’s installed base is also significantly larger than for any previous launch. In previous launches, approximate estimates for penetration of new product to Apple installed base was 8% with the iPhone (using the iPad and Mac base), 15% with the iPad (using the iPhone, Mac and iPod base). This is why I believe even a 24m estimate in the first full year could be low as that is still only a 5% penetration of Apple’s iPhone installed base. If we use similar numbers to the above launch/penetration rates, modeling a conservative 10% penetration puts first full year sales at 45 million. That number could be the high end “reasonable” number but I’m remaining conservative for the time being until all is revealed.

Lastly, we have the price. At $349 for the Sport Edition, it will be the lowest price of a new product category at launch. This is another key factor I believe will drive sales past 20m in the first year. The price, combined with the unique new communication capabilities could drive a network effect for the product — people will want spouses, loved ones, family members, to have them. So, even those who can afford and are loyal base customers out of the gate, who also have higher disposable income, will likely also buy for spouses or family members.

I remain confident we will see very strong numbers with the Apple Watch and, after the event when see more details and pricing, it is possible I’ll move my numbers up. But what I’ve laid out is my conservative case at the moment for Apple Watch sales.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

6 thoughts on “Rationalizing Apple Watch Estimates”

  1. It is hard to predict sales of new product categories, but I think you are using some very sensible reference points.

    1. Usually, Apple does its best work in delivering the new thing. For instance Jobs made the decision to call the first iPhone a phone. It was years before it was recognized as a ‘computer in your pocket’. I think he didn’t point out it was a computer pocket rocket because we weren’t ready to buy that, but we were ready to mess around with a gizmo that made calls and a few other things which was controlled by only our fingers.

      1. Some of us recognized the iPhone as a Mac in your pocket the day it was announced, and we bought a bunch of Apple stock after that 🙂

        But yeah, most people did not get it. I’m only now seeing it become common to call these devices pocket computers.

  2. Looking at a lot of commentary on the subject on the Internet, I’m surprised how may people discuss the sales potential of the Apple Watch relative to the number of people who wear watches today.

    Interestingly, you don’t include that at all in your estimates.

    And that, I think is very important. Looking at the current watch market is probably quite useless in assessing the Apple Watch opportunity.

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