Apple rounded out an improbably strong year of product releases with the announcement of AirPods Max and Apple Fitness+ availability. While individually these products won’t move the needle, they collectively strengthen the fabric of the company’s hardware, software, and services integration. Our takeaways:
AirPods Max
- Over-the-ear AirPods for $549, AirPods Max are an impressive product with a price to match. You can purchase them in installments using Apple Card at $91.50/month for 6 months.
- As the name implies, AirPods Max are big. In our view, bigger is better when it comes to sound.
- Given the price and design, we expect AirPods Max to quickly become a status symbol.
- An unanswered question is how good they are for phone calls, something wireless over-the-ear Beats never got right.
- The move to enter the over-the-ear headphone market begs the question of what happens with the Beats brand long-term. We believe Beats revenue in 2020 will approach $800m, down from about $1.8B in 2014, when Apple acquired the company. Despite this decline, Apple got what it wanted with music streaming services and learnings that were the foundation for AirPods. In the end, the $3B Beats acquisition payback picture was favorable. This year, we expect AirPods hardware to generate $12.7B in revenue, Apple Music $6.8B (82m subs at an average of $7 a month), and Beats $800m, for a total of $20.3B in revenue.
Apple Fitness+
- Apple Fitness+ launches on December 14. At $9.99/month, it will compete with two segments: the 510k plus Peloton Digital customers paying $12.99/month, and the 175m gym members globally, of which 65m are in the US. Over the next year, we expect total gym memberships in the US to decline 10% to 58.5m, as a result of the workout-from-home shift spurred by the pandemic.
- Fitness apps often have impressive retention metrics. For example, Peloton retains about 90% of its base annually. This compares to Spotify at about 55%.
- We expect a halo effect between Apple Watch and Fitness+, given the app requires an Apple Watch Series 3 or later. Today, we estimate 82m Apple Watch Series 3 or later have been sold, implying 92% of the active iPhone user base needs to buy a Watch to use Fitness +.