How Apple could generate $313 billion from healthcare in 2027 - and why it won't

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Apple's healthcare play could generate $313 billion in revenue by 2027 - more than double Apple's total revenue in fiscal year 2018.

Apple's myriad moves into healthcare have laid the foundation for anywhere between $15 billion and $313 billion in healthcare-related revenue by 2027, with a midpoint estimate of $91 billion, according to a Morgan Stanley report shared with Business Insider.

Here's Apple's path to $313 billion in healthcare-related revenue by 2027:

• Apple continues its rapid growth pace in the wearables market. Apple's pinned healthcare as a new channel to drive Watch sales and has landed major US insurer partnerships over the past year. The tech giant is also working to embed new medical sensors in the Watch to carve out more niche use cases like diabetes management and broaden its addressable market. Apple grew wearable revenue 42% year-over-year (YoY) in 2018 and could hit around $15 billion in healthcare-related revenue by 2021 if it continues on that trajectory.
• Apple monetizes its healthcare investments through existing services like iCloud and App Store. For example, Apple could charge a "take rate" on health services delivered through its App store. While health and fitness app gross revenue from Apple's App Store totaled $670M - just 1% of App Store gross revenue - building a more robust ecosystem of mobile health apps presents a lucrative opportunity.
• Apple generates substantial fee-related revenue by reducing healthcare's massive waste problem.Medical waste cost the US healthcare system somewhere between $560 million and $1.3 trillion in 2011. If Apple can streamline healthcare data flows to reduce administrative burdens and unnecessary treatments for health firms, it could reduce waste and charge a fee for the service. Morgan Stanley's high-end estimate assumes that Apple could reduce up to 50% of all US healthcare waste by 2027.

And here's why we think Apple will fall far short of that high-end revenue mark:

• We're skeptical Apple will sustain current growth in its wearables segment. YoY growth in adult US wearable usage is projected to slow to 5% in 2022, down from 13% in 2018, according to eMarketer. Moreover, Apple faces stiff competition from vendors like Xiaomi and Huawei as it looks abroad.
• Healthcare's intractable privacy regulation will hinder Apple's play to monetize healthcare services in the near term. US regulatory overseers have sent a positive signal to tech companies over the past year, granting Amazon's Alexa HIPAA compliance and giving the nod to new medical features in the latest Apple Watch. But these approvals are tied to consumer-facing devices: We think Apple faces a far steeper climb as it forays into electronic medical records and remote patient monitoring as a service.
• It's highly unlikely Apple could come close to reducing 50% of US healthcare waste in the next 9 years.Healthcare waste stems from payment issues, supply chain inefficiencies, and unnecessary medical tests. It's hard to see Apple have a meaningful impact in all of these areas in such a short time frame, especially as big tech players jostle for a role in healthcare and regulation slows the pace of Apple's healthcare play.

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