AirPods have become a millennial status symbol, and Apple's earnings suggest they could be its next big thing after the iPhone
- Apple's wearables, home, and accessories business unit, which includes the AirPods and Apple Watch among other products, is outpacing the iPad and catching up to the Mac.
- That's increasingly important as Apple continues to look for ways to offset slowing iPhone sales.
- While AirPods aren't solely responsible for that category's growth, they've become a status symbol in recent years.
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As Apple's iPhone sales continue to stall, much of the conversation among analysts and industry watchers has been focused on Apple's big push into services, and rightfully so. The company is on the verge of launching its own credit card, a TV service loaded with big-budget programs, and a subscription gaming service.
But Apple's fiscal third-quarter earnings served as another reminder that Apple's wearables business - which includes the Apple Watch and AirPods - is becoming increasingly important. It's even starting overshadow well-established products Apple has been selling for years, transitioning AirPods from an ancillary iPhone accessory to a lucrative area of growth for the company.
Apple's wearables, home, and accessories division, which includes products like the Apple Watch and AirPods, outpaced the company's iPad business and is gradually catching up to the Mac. This unit accounted for $5.5 billion in net sales for the quarter that ended on June 29, while the iPad hit $5 billion in net sales and the Mac achieved $5.8 billion.
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"Read this slowly and ponder it: Apple's wearable, home & accessory category is larger than iPad sales," said Jim Suva and Asiya Merchant, in a note from CitiBank about Apple's earnings. "This underscores a new theme that is starting to emerge from Apple, which we believe investors are overlooking and that is the diversity of Apple's offerings."
Analysts from Keybanc Capital Markets, Nomura, and Credit Suisse also pointed to AirPods and the Apple Watch as being key growth drivers for Apple's wearables, home, and accessories division. Keybanc described AirPods as "performing exceptionally well," while Nomura noted that "AirPods were of course strong."
Apple hasn't said how many AirPods units its sold since introducing the wireless headphones in 2016. But third-party estimates indicate they're doing well. Apple snagged 60% of the market for truly wireless headphones in the fourth quarter of 2018, according to Counterpoint Research.
TF International Securities Ming-Chi Kuo, an analyst known for his often accurate Apple predictions, estimated in December that the company would ship between 26 million and 28 million AirPods in 2018. That could jump to between 50 million and 55 million in 2019, driven by the launch of Apple's second-generation AirPods that come with an optional wireless charging case and hands-free Siri functionality.
Of course, AirPods aren't solely responsible for the notable growth occurring in Apple's wearables business. The Apple Watch likely also plays a large role, especially considering Apple's smartwatches are far more expensive than its $159 wireless earbuds. The Apple Watch was responsible for 51% of the global smartwatch market in the fourth quarter of 2018, says a report from Strategy Analytics.
But what makes AirPods particularly special is because, like the iPhone, they've become a status symbol. Although they were mocked when Apple unveiled them in 2016, AirPods quickly caught on and became the center of popular memes, particularly ones that poked fun at the headphones' price.
One tweet posted in December 2018, for example, compiled a list of the 10 richest people - and included AirPod owners at the top above Amazon CEO Jeff Bezos, Facebook CEO Mark Zuckerberg, and Oprah Winfrey among others. It has nearly 50 thousand likes and nearly 20 thousand retweets.
Celebrities such as Miley Cyrus, Travis Scott, and Lil Uzi Vert all purchased a pair of Louis Vuitton-designed $1,000 AirPods, as Page Six reported earlier this year. In 2017, Apple CEO Tim Cook even called AirPods a "cultural phenomenon" at the company's annual shareholders meeting.
Apple even flaunted this on stage during its Worldwide Developers Conference in June, when it showcased how iOS 13 will make it possible to create your own personal emoji that you can customize with AirPods. This suggests Apple believes AirPods say as much about your personal look as accessories like jewelry and sunglasses. Apple enlisted YouTube lifestyle and beauty personalities Patrick Starrr and Desi Perkins to showcase the new AirPods-clad Memojis on stage.
Apple may never have a hit that's quite as big and impactful as the iPhone ever again. But with AirPods, it's at least proving that it can still move a nascent product category into the mainstream, as it did more than a decade ago with its first smartphone.