When Apple released the first generation of AirPods three years ago, many people thought it was just an add-on product that could increase the average selling price of the iPhone. But AirPods' success has exceeded everyone's expectations. It now looks like AirPods are more than just an iPhone accessory.
Imagine if a startup had $12 billion in revenue, Apple-style gross margins (30-50%) would achieve annual revenue growth of more than 125% for two consecutive years. How much is this company worth without knowing anything else?
This is Apple's AirPods business, the fastest-growing segment of the US's largest market capitalization companies.
Although Apple did not disclose specific sales figures for AirPods, analysts have estimated sales figures for the past three years.
In 2017, Apple sold about 15 million pairs of AirPods for $150 each. This brought Apple $2.25 billion in revenue, accounting for only 1% of the $215 billion in iPhone revenue.
But in 2018, sales of AirPods began to calm down bears. Apple sold 35 million pairs of AirPods in 2018 and still sells for $150. This brought Apple $5.25 billion in revenue, accounting for 2.4% of iPhone revenue.
And in 2019, AirPods has achieved incredible sales growth: Analysts expect Apple to sell 60 million AirPods in 2019.
Not only that, but the price of AirPods has also increased in 2019. Apple's second-generation AirPods cost $200, and the latest AirPods Pro cost $250. Assuming that the sales of the first and second generation AirPods and AirPods Pro are split equally, AirPods' revenue in 2019 is about $12 billion. This is equivalent to 4.5% of Apple's iPhone revenue.
Because although 4.5% doesn't sound impressive, it's 4.5% of the world's most successful product. Considering that Apple's market value is five times its revenue, this means that the AirPods business is worth $60 billion.
Unconsciously, AirPods' revenue has surpassed the world's top technology companies such as Nvidia and AMD, which is equivalent to the total of Spotify, Twitter and Shopify. Considering its three-digit growth for two consecutive years, AirPods' revenue is expected to even surpass Uber in 2020.
In addition, AirPods represent only part of Apple's audio business. Apple also owns Beats, which occupies a considerable share of the global headset market.
According to previous estimates, more than 100 million pairs of AirPods have been sold since their release, and Apple ’s iPhone installation base is 900 million. This means there is still a lot of room for growth in AirPods sales.
In addition, there are rumors that Apple may launch the AirPods operating system Siri OS in 2020. If Apple can successfully build an ecosystem around AirPods and audio experiences, Apple will be able to increase prices without reducing demand.
The audio experience may also be a tool for the growing base of Apple mobile phone users. The gap between the iPhone and other smartphones is shrinking each year, but the new audio experience may change that and re-stimulate Apple iPhone sales growth.
In the long run, just a new iPhone accessory will not change Apple's fate but building a sound audio ecosystem may change it.
