Why Investors Shouldn’t Be Too Concerned About Recent Reports On Apple Watch Sales

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According to widely cited research report by Slice Intelligence, online sales of the Apple (NASDAQ:AAPL) Watch plunged by 90% since the opening week. Slice, which bases its research on electronic receipts sent to millions of email addresses following purchases, estimates that Apple has been selling fewer than 20,000 watches a day in the U.S. since the initial surge in April, with sales dipping to as low as 5,000 units on some days in late June. [1] The firm estimated that cumulative U.S. Apple Watch sales stood at 2.79 million units in mid-June, about two months post launch. While it’s not unusual for sought-after consumer electronics products see a decline in sales after their introduction, as launch momentum wanes and as initial stocks dry up, the Apple Watch numbers might appear concerning, as supply constraints appear to be easing (popular models are available to ship within 1 business day in the U.S.). The news is at least partially responsible for the recent sell off in Apple stock, which is down by about 5% this week. However, we believe that investors shouldn’t be overly concerned about the numbers for multiple reasons. Below we explain why. 

We have a $144 price estimate for Apple, which translates to a market cap of about $830 billion. Our price estimate is about 20% ahead of the current market price.

See Our Complete Analysis For Apple Here

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1) International Sales:  Apple Watch is sold in 16 other countries outside the United States and we believe that international sales should be equal to or exceed domestic sales.  Apple has been seeing extremely strong momentum in China – now the single largest iPhone market – and we expect a large chunk of Apple Watch sales to come from here, considering Apple’s brand cachet and its heavy promotion of the device.

2) Retail Availability: Apple Watch wasn’t available for sale in retail stores (upon reservation) until mid-June, which coincides with the biggest sales dip on the chart. This could potentially indicate a shift from online sales to in store sales. Being a wearable device (and a relatively expensive one at that), customers may prefer retail purchases. While the watch has been available to try on in stores since launch, the in-store availability could help sales going forward.

3) Potential Sampling Bias: Slice obtains much of its consumer data from a shopping assistance iOS app, which is likely to be more popular with bargain hunters. According to AppleInsider, much of Slice volunteer data streams come from discount online sales and big box retail. The company’s demographic may not be the best representation of Apple Watch customers, who are potentially more affluent and akin to luxury product buyers.

4) Customers Wait and Watch: As things stand, the Apple Watch still lacks a killer application and many  customers are unsure if they need the device in addition to a smartphone. Many customers are adopting a wait-and-see approach, as Apple irons out early flaws (an overhauled Watch OS will be available this fall) and as developers build more compelling apps. This should help Apple build momentum over the longer-term.

We Continue To Model 17.5 Million Watch Shipments For CY’15

As we’ve noted before, we don’t think that the Apple Watch will move the needle significantly for Apple in terms of sales or market cap. We are reiterating our 17.5 million shipment estimate for CY 2015. Based on Slice data, and adjusting for any potential biases, we estimate that Apple could have sold over 3.5 million units of the Watch through the end of June in the United States. Assuming a similar level of international sales, this would translate to about 7 million in cumulative sales through June, a little over two months post launch. Apple still has a good 6 months this year to move an additional 10 million units. This should be achievable, as it benefits from in-store availability and possibly new retail channels, holiday demand, extended international availability and the forthcoming software improvements.

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Notes:
  1. Opinion: Apple Watch sales plunge 90%, MarketWatch, July 2015 []