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Apple (AAPL) is preparing to launch a new product line in the form of a mixed reality headset. The Augmented/Virtual reality wearable product has been the focus of many rumors over the last year, but its release may be imminent.
In this article, I’ll discuss why this product may be much bigger than investors are currently expecting.
Metaverse projects could be big business
Apple is said to be working on its MR headset, Codenamed N301, and is expected to be more expensive and less widespread than the AR glasses product, but it is expected to arrive sooner to recuperate some of the early development costs while Apple’s team continues its work on the AR glasses.
According to Yahoo, Apple analyst and insider Ming-Chi Kuo said this first-generation device will, “set the bar for premium virtual reality and augmented reality hardware to come.”
The latest rumor is for a release date sometime in 2022, and the product is not cheap at an estimated $3,000. Some may see that as a hurdle to sales, but I will explain why this product may become as valuable to some as a MacBook.
I wrote an article recently on GameStop (GME) and readers may also wish to have a look at that because I explain in detail the current environment for play-to-earn blockchain gaming and the early efforts of the Metaverse. The reality is that we are likely at the start of a Metaverse boom and it is no coincidence that Facebook (FB) has rebranded its business to Meta Platforms to focus on that niche.
The fourth-quarter results were disappointing for Facebook, with critics turning on its meta ambitions, but it is the legacy platform that is suffering and the social media market is crying out for something new. That could well be the Metaverse and just because the company changed its name, it doesn’t mean they will dominate the space.
The social media giant is not the only corporate that is embracing this move to Web 3.0, with the recent news that Walmart (WMT) was making moves to sell virtual goods and dip its toe into the world of cryptocurrency and NFTs. A tweet from ‘Homo Digitalis’ showed what shopping virtually may entail.
adidas (OTCQX:ADDYY) is another company that has made early moves into this area with the company launching an NFT collection which earned $23 million in the first launch. The company also purchased digital real estate on the Sandbox platform, which is a blockchain virtual world. Prices of land on the platform, and its competitor Decentraland, surged after the Facebook rebrand.
Also back in November, Nike (NKE) filed trademark applications with a view to selling virtual branded sneakers. It also plans to create a virtual world called NIKELAND in partnership with Roblox (NYSE:RBLX).
For investors, they need to envisage how big the VR/AR headset could be if these corporate giants start moving into the Metaverse virtual worlds. A Nike virtual store could kit out users’ avatars with virtual designer sneakers, while Walmart can provide goods for their virtual homes.
Events will be another draw as Warner Music announced a partnership with the Sandbox to create a musical theme park and concert venue. This Friday will also see a DJ set by dance music producer and DJ, David Guetta.
The Sandbox
These early entrants and developments should give investors a picture of how the Metaverse will entice users onto platforms. Opportunities to attend virtual events, buy land and develop a property, visit virtual casinos, and earn revenues will all be possible for users and that is why AR/VR headsets could become as valuable to some as a MacBook or iPad.
The market may be underestimating this revenue stream
With this in mind, what will it mean for Apple’s bottom line?
The recent first-quarter revenues showed sales of $71bn for the iPhone, $10.8bn, and $7.2bn respectively, for the Mac and iPad.
Apple
The Mac currently makes up around 8% of total net sales, while the iPad accounts for 5.8%.
Estimates from Statista say that in 2020, sales of augmented and virtual reality (AR/VR) headsets were set to be around 5.5 million units, with a forecast for massive growth in the coming years. Sales are expected to be over 26 million units per year by 2023 and 43 million by 2025.
Apple can wedge itself into the market at the early stages of this hot growth potential happens. At $3,000, Apple would need to sell 2 million headsets per quarter to match iPad sales. The quarterly market available for the VR/AR offering would be around 5 million in 2023 and 10 million in 2025.
There is potential that the use of these headsets becomes more mainstream and that could see a surge in sales into 2025-2030. Sales would then normalize to a smaller stream but there is potential for a significant boost to revenues.
Some may see the high price tag as a headwind but Apple leads the tablet market despite higher prices. It may be that the company sees stronger sales over the longer-term due to the initial release of the $3,000 headset, and a likely later release of a budget version.
Apple Insider
Apple is already seeing new milestones
Apple posted an all-time revenue record of $123.9 billion in its recent first-quarter earnings release, which was 11 percent higher year over year.
“This quarter’s record results were made possible by our most innovative lineup of products and services ever,” said Tim Cook, Apple’s CEO. “We are gratified to see the response from customers around the world at a time when staying connected has never been more important”.
Apple also saw a record market share in China with the launch of the iPhone 13. The new model allowed for a record smartphone market share of 23%.
Counterpoint Research said two factors helped in the fourth quarter: the impact of U.S. sanctions on major competitor Huawei, and a lower starting price in China.
This is a continued sign of strength in the brand and when the products are reasonably priced they will fly off the shelves.
Not everyone is a fan of the Metaverse
Corporate America may be embracing the Metaverse with open arms, but not everyone is a fan of the outlook.
One of Facebook’s earliest investors has said the company’s plans for a metaverse were “dystopian”. Roger McNamee added: “It’s a bad idea and the fact we are all sitting and looking at this like it’s normal should be alarming everyone.”
“There’s no way that a regulator or policymaker should be allowing Facebook to operate there or get into cryptocurrencies,” he said.
“Facebook should have lost the right to make its own choices. A regulator should be there giving pre-approval for everything they do. The amount of harm they’ve done is incalculable.”
Despite its critics, the largest corporates appear to be making it an important part of their future business models and Apple’s headsets will arrive right on time to capitalize.
Conclusion
Apple is turning out impressive performance metrics and its business segments are growing alongside phone sales, which grabbed record market share in China in the most recent quarter. Investors are seeing the upcoming VR/AR headsets as another potential product line that can add revenues, but they may be underestimating its potential. As more and more companies start moving into the virtual world, the customer base for headsets is forecast to expand rapidly and the desire for Apple quality products could see revenues for headsets challenge legacy product lines, such as tablets. This will be another string to the bow of a company that seems to be going from strength to strength.
