Apple’s AirPods Will Be Hot in 2020, but Sales May Drop Quickly Like the iPad - Barron's

Courtesy of Apple

Apple’s AirPods continue to be a runaway hit but Wall Street is wondering just how much juice is left in the wireless headphones.

AirPods are expected to keep flying off the shelves well into 2020, Toni Sacconaghi of Bernstein said in note Friday. But despite exuberance for next year, the pricey headphones—starting at $150 a pop—could go the way of the iPad and see a rapid drop off in sales in later years.

Apple (ticker: AAPL) is likely to sell 85 million AirPods next year, representing a 110% increase in unit sales from 2019, according to Sacconaghi’s estimates. If completed, those sales would generate $15 billion and contribute 3.5% to the company’s total revenues, coming in $4 billion to $8 billion higher than consensus estimates.

But the music may stop soon thereafter.

“Given the AirPods’ extraordinarily steep adoption curve and rapid saturation of the iPhone installed base, we see a dramatic deceleration” in AirPod revenue growth by 2021 or 2022 to single digit growth rates or maybe lower, Sacconaghi wrote, drawing comparisons to iPad sales, which stopped climbing just four years after the device’s “spectacular” launch.

By his measure, there are roughly 900 million iPhones out in the wild, but only 650 million of them are first-hand. There is some doubt that people who buy iPhones second hand would be willing to fork over $150 for a set of headphones to match. In Sacconaghi’s worst case scenario, there are probably only 300 million audiophiles, based on his estimates of subscribers to Spotify, Apple Music and other services, who will actively buy and update their AirPods.

Even in Sacconaghi’s best case scenario, the drop off in sales would be dramatic. If 2020 sees a 110% increase in unit sales, 2021 may only see a 10% bump, he said.

“The faster they grow, the harder they fall?” Sacconaghi wrote in his note. “Growth tends to slow down a lot once you reach the top of the curve, and AirPods are simply growing so fast today that they risk reaching the top in record time.”

An Apple spokesperson didn’t immediately respond to requests to comment.

Write to Carleton English at carleton.english@dowjones.com

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https://www.barrons.com/articles/apples-airpods-will-be-hot-in-2020-but-sales-may-drop-quickly-like-the-ipad-51577102400

2019-12-23 12:00:00Z
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