The History and Future of AirPods
Apple can't stop innovating and crushing earnings
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AirPod Twitter MADNESS
This past Friday, at exactly 6:43 in the morning, I sent out a tweet that I never thought would be the most “viral” tweet I have sent into the Twittersphere so far. With well over 19,100 likes, 2.6 million impressions, and 440k engagements later I felt the need to dig deeper and express some of the discussions in the comments and my clarifications in the post itself. Along with this, I want to look into possibly why Airpods continue to knock it out of the park, have become a staple product for Apple, and an overview of this quarter’s earnings.
To be clear, I am (and have been for quite some time) long Apple $AAPL and truly believe it is the best company in the world so keep that open bias in mind.
Here’s the post that went to the 🌙
It’s absolutely incredible that in 2020 Apple AirPods had more sales than Square, Twitter, Shopify, and Snapchat combined!
Not so fast…
If you dig deeper this number for Apple Airpods net sales ($23.05 B) is an estimate based on Apple’s 2020 10k which you can find here. In the 10k, pictured below this paragraph, you can see AirPods fall under the “Wearables, Home, and Accessories” section in which the net sales for 2020 were $30.6 BILLION. The “Wearables” section includes the AirPods, Watch, HomePod, etc. It’s pretty hard to wrap your head around the fact that Apple is such an incredible company that their wearables alone are just over a million under Tesla’s revenue for all of 2020.
In 2018, the “Wearables, Home and Accessories” section grew 41% YoY from $17.3 B to $24.4 B and then 25% again over 2019 to $30.6 B. Later in this newsletter, I will go into why I think this product will continue to grow and break records but for now, I need to defend my original post.
How did “StatsPanda” come up with an estimated $23.05 Billion in AirPod sales?
To start, I want to reiterate that nobody knows exactly the amount of sales AirPods, Apple Watches, or any other individual accessory in the wearables section. This is likely out of classic competition. Why release sales for specific products when they don’t legally need to? Since that section makes up a wide range of products (watches, headphones, home speakers, etc.) Apple’s competitors make most, if not all, the same products and they likely don’t want who to know which are doing better or worse. With everyone I know owning AirPods and some even owning multiple pairs, it’s not hard to guess that they were the big winner in the category. Apple even made it clear that for 2020 the leader in the wearables section was "smart personal audio" devices which is just a fancy way of saying AirPods. According to Apple Insider in 2020, it said Apple sold over 108.9 million units of Airpods, AirPods Pro, AirPods Max, and Beats by Dre headphones. The difficulty of getting an accurate AirPod net sales number also includes having varying price points coming into effect with Airpods Pro, Airpods 2nd Gen, and Airpods Max. In this article, Business Insider states that in 2019, 60 million AirPod units were sold - so 108.9 million in 2020 was quite a jump even if some of it included Beats products.
Long story short, nobody exactly knows but $23.05 Billion is definitely on the higher side of estimates. From various articles, I have read lower estimates around $12-$14 billion in net sales for AirPods in 2020. Let’s say that was the case - that’s still more than Twitter, Shopify, and Snapchat 2020 revenue combined! Now let’s dig into how AirPods went from the internet laughing stock to the zoom conference starter pack.
The History of Airpods
AirPods were first released on December 1st, 2016 with the steep price of $159, and the internet was immediately mocking them all over Twitter and other social media sites. Who would want to wear a piece of plastic that costs that much in their ear? Won’t they fall out? Why does it look like a Q tip? The mocking was endless.
Every meme dove into these concerns and below are some famous examples of this…
Then people started to wear them.
I refused for a long time and eventually caved when Gen 2 was released - once I had my first pair of AirPods I never looked back. The simplicity of asking for Siri out of thin air, skipping and pausing songs with a light touch, and not being restricted by cords was too convenient for a lot of people and quickly haters (including me) became fans. I soon found it immensely burdensome to have a conversation on the phone without my AirPods. Holding a phone on a call was a thing in the past and no matter what I could hear better and feel more ‘crisply’ heard while wearing my AirPods. Regardless of my love for AirPods, the numbers backed up my thoughts and people bought them as if their lives depended on them.
AirPods Gen 2
In March 2019 the AirPods Gen 2 was released which was a great advancement from Gen 1 - better battery life, quicker charging, “Hey Siri”, up to 5 hours of listening time, all that good stuff. As always with Apple, they give you the half-baked version (Gen 1) that isn't completely ready, and then just when you think you waited long enough for Gen 2 release you lose/break them and you have to cave and buy the Gen 1 again only to be willfully bamboozled when they drop Gen 2 a month later. If there was a conspiracy theory I believed in so deeply it would be that at Apple headquarters Tim Cook has a button that he presses that sends a signal to every previous generation Apple product to crap out just several months before they announce a new product release forcing everyone to fork up the cash for a replacement. It’s like clockwork that this happens and for all the Apple heads that get mad at me for saying this you know, it’s true.
AirPod Pros
The biggest improvement came on October 30th, 2019 when the AirPod Pros were released for $249. As you can see in the graphic below the AirPod Pros changed the game with noise cancellation optimal for zoom/phone calls. Everyone I know loves these and they ditched the Q-tip look for a more concealed short stock design.
The Pandemic Boosts Sales
There’s no way else to say this but the COVID pandemic fell right into Apple’s lap. People began working remotely like never before and craved wireless headphones for their copious amount of zoom calls and online meetings. On top of this, all other Apple devices were needing replacements, and computer/laptop sales were through the roof (for every computer company for that matter, not just Apple). As explained earlier in this post, this is largely the reason for the tremendous amount of net sales from these AirPods. But like most products that Apple makes, AirPods are incredibly sticky and became a purchase of habit. As I type this my AirPods have been broken for two weeks and my ears have felt naked ever since. Talk to someone while holding the phone? How is that possible? My arm will get tired! Kidding, but the point is it’s truly hard to go from AirPods back to anything else. I know many people who are on their third and fourth pair (some on Twitter commented even up to even 8th pair 😬).
Before we go into the future of Airpods I want to give a representation of what it can feel like to be an Airpods customer over the years.
The Future of Airpods
Here is the breakdown of that infamous “Wearables, Home and Accesorries” for 2021 so far after Apple released earnings yesterday.
Quarter 1: $12.97 Billion in net sales
Quarter 2: $7.83 Billion in net sales
Quarter 3: $8.7 Billion in net sales
In all honesty, I was slightly shocked that net sales in this category were more than Q2 considering this past quarter people have begun living a less “COVID lifestyle” and many have returned from remote work. I believe the AirPod Pros (currently $189 at Best Buy) boosted this quarter’s net sales for this section considering that if you are going to buy AirPods that is the obvious option.
If we take the mean (average) of these three quarters you get $9.83 Billion in sales and a standard deviation from the mean of 2.24.
If you want to know how I got the standard deviation click here.
So using the low-end standard deviation from the mean (9.83-2.24) we get an estimate of $7.59 Billion in net sales for Q4. In total this would be an estimated $37.09B net sales for the Wearables section of Apple’s 2021 10k and the high-end estimate using the standard deviation from the mean would be $41.57B. We will have to wait and see for a Q4 where the number actually ends up but more than likely it will fall somewhere between those two high and low-end estimates. Something that could possibly push the number to my high-end estimate is the release of AirPods 3…
AirPods 3
According to MacRumors the Apple AirPods 3 are to be released sometime in 2021
“Apple is working on a third-generation version of the AirPods, and for this updated version rumored to be launching in 2021, we could see some design changes for the first time since the AirPods came out in 2016. This guide covers everything that we know about the upcoming AirPods 3”
Source: MacRumors
It is rumored that the Airpods 3 won’t be noise-canceling like the AirPod Gen 1 and 2 (and won’t be as expensive as the pros for this reason) but will feature better battery life, a new chip, and a faster connecting/switching device time, and a shorter stock design. The belief is that the official announcement will be during the iPhone 13 announcement in September. It’s safe to say to hold out on buying AirPods until this announcement.
In all, if the “Wearables, Home and Accessories” section for Apple could do around $37 billion in net sales for 2021 which be close to the equivalent of the amount of revenue Shopify, Adobe, Nvidia, and Uber did in 2020 COMBINED.
I don’t care if that estimated $37 Billion is only 70% or even 50% from AirPods sales. It is truly remarkable the magnitude of this product and it shows how incredibly innovative Apple is. Under Tim Cook’s guidance, I believe Apple will continue to find winning products that just naturally look better, feel better, and perform better than the competition.
Apple Earnings
How could I not dive into $AAPL earnings after such an incredible quarter?
Apple utterly crushed earnings with quarterly revenue up 53.6% YoY, quarterly net income 110% YoY, and quarterly net profit margin up 36.75% YoY. Apple’s iPhone sales have increased over 50% on an annual basis which is incredible considering that the iPhone is still to be released. Below are more metrics from CNBC of their earnings.
Apple did not release any guidance which isn’t anything new since the start of the pandemic. Tim Cook did talk about the global chip shortage that could having affect iPhone and iPad sales this upcoming quarter which has been a concern for several quarters. As usual with Apple, and all the other companies that posted great numbers yesterday, the share price was down 2% after hours. Priced in? Possibly, but I believe Apple has much more room to grow with the upcoming iPhone 13 release, AirPods 3, and the new Apple Watch 7 (just to name a few).
One could even argue that $AAPL is historically undervalued…
On YCharts it passes 9 out of 10 fundamental scores and using the PE/PS Method Valuation Apple’s price is 7.85% under its historical valuation. Apple is an absolute monster of a company and this is personally a stock I likely won’t be selling any time soon. If you think Apple is overvalued I would love to hear your opinion in the comments below.
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Thank you all who read this far.
Have a great rest of your week! See you for Friday’s newsletter!
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