When Apple released its first-generation AirPods three years ago, many thought it was an add-on that would raise the average price of the iPhone. But the AirPods have been more successful than anyone expected. Now it looks like the AirPods are more than just an iPhone accessory. Imagine that if a start-up had $12 billion in revenue, Apple-style gross margin (30-50 percent) would have grown by more than 125 percent a year for two years in a row. How much is the company worth without knowing other wise information?
That’s Apple’s AirPods business, the fastest-growing segment of the U.S. market capitalization.
While Apple didn’t disclose specific sales figures for AirPods, analysts have estimated sales for the past three years.
In 2017, Apple sold about 15 million pairs of AirPods for $150 each. That brings in $2.25 billion in revenue, or 1 percent of the $215 billion the iPhone generates.
But in 2018, sales of AirPods are beginning to silence apple-selling. Apple sold 35 million pairs of AirPods in 2018 for $150. That brings in $5.25 billion in revenue, or 2.4 percent of the iPhone’s revenue.
And in 2019, AirPods have seen incredible sales growth: Analysts expect Apple to sell 60 million AirPods in 2019.
Not only that, but airPods have gone up in 2019. Apple’s second-generation AirPods cost $200, and the latest AirPods Pro costs $250. Assuming sales of the first- and second-generation AirPods and AirPods Pro are split equally, AirPods will have revenues of about $12 billion in 2019. That’s equivalent to 4.5 percent of Apple’s iPhone revenue.
Because while 4.5% doesn’t sound impressive, it’s 4.5% of the world’s most successful products. Given that Apple’s market capitalisation is five times revenue, that means the AirPods business is worth $60 billion.
Unwittingly, AirPods has outstripped the world’s top technology companies such as Nvidia and AMD, equivalent to Spotify, Twitter, Snap and Shopify combined. AirPods are on track to surpass Uber’s revenue by 2020, given its two consecutive years of triple-digit growth.
In addition, AirPods represent only a part of Apple’s audio business. Apple also owns Beats, which accounts for a significant share of the global headphone market.
According to previous estimates, AirPods have sold more than 100 million pairs since its launch, compared with Apple’s iPhone installbase of 900 million. That means there’s still plenty of room for AirPods sales to grow.
In addition, there are rumors that Apple may launch SiriOS, the operating system of AirPods, in 2020. If Apple succeeds in building an ecosystem around AirPods and audio experiences, Apple will be able to raise prices without reducing demand.
The audio experience could also be a tool for Apple’s mobile phone base to grow. The gap between the iPhone and other smartphones is narrowing every year, but the new audio experience could change that and spur Apple’s iPhone sales growth.
In the long run, a new iPhone accessory alone won’t change Apple’s fortunes, but building a perfect audio ecosystem could change.