Apple Inc. (NASDAQ:AAPL) is set to release the Apple Watch, the company’s first piece of wearable technology, on April 28. As the company gears up for that launch, investors are trying to figure out how many units the company will be able to sell in the first few months, and what that means for the company’s share price.
Consensus estimates for sales of the iWatch are coming in at 22.5 million units. If Apple manages to move that many timepieces, the company’s investors will certainly be satisfied, arriving at that number is, however, easier said than done. Once you’ve seen how those projections are done, however, you may learn not to believe those making the forecasts.
Developing a model for the Apple Watch
Putting together a model to figure out the number of Apple Watch units the Cupertino company is likely to sell in the coming year isn’t easy and there’s no hard and reliable way of doing it. One of the simplest and clearest methods for making that estimation comes fro JP Morgan Analyst Katy Huberty. The analyst reckons that Apple will manage to sell around 30 million units of the Watch in the first year of availability.
Huberty reckons that because the Apple Watch relies on the iPhone for functionality, sales of the wearable computer are going to be directly related to the number of compatible iPhones on the market. The Apple Watch will support the iPhone 5, iPhone 5s, iPhone 5c, iPhone 6, and iPhone 6 Plus.
There’s about 315 million compatible iPhones out there, and the JPMorgan analyst reckons that by the time twelve months has elapsed around 10% of iPhone owners will have bought themselves an Apple Watch. That 10% number comes from comparisons with previous Apple sales statistics and surveys of the appeal. The iPad had a 14% attach rate in its first year on the market.
Apple Watch sales projection
The simplicity of the JPMorgan sales projection may confound a lot of Apple investors, but that’s the way a lot of Sell-side analysts go about their daily work. Projecting Apple Watch Sales based on attach rate is just as good a methodology as any other at this point. Whether you think the number will be higher or lower than 10% is a matter of opinion.
Most Wall Street analysts are looking for an attach rate of around 7%, closer to that of the original iPhone on its release back in 2007. That means around 22.5 million units inside the first year. Gene Munster of Piper Jaffray, long known for his bullish predictions about Apple’s future, is looking for an attach rate of just 2.5%, or around 8 million units.
Don’t believe the analysts
Sell side analysts of the sort that make Apple Watch sales predictions, don’t lose their jobs for being wrong, and with good reason. Their job isn’t to be accurate, it’s to attract clients to their firm. Being right helps, but being bombastic and newsworthy is often better.
Apple is a buy if you believe the company’s design, computing and marketing savvy are enough to drive sales of the Apple watch and the company’s other products. There’s little point in trying looking for accurate predictions of the company’s Watch sales from sell-side analysts, as can be seen in the variance of methods, and variance of answers, they give to the exact same question.