AirTags and Apple's Revenue

Apple announced a new accessory at its Spring Loaded Event on the 20th of April. This accessory, called AirTag, is a small tile-like device that attaches to and helps you find items such as wallets, laptops, or even your car. The small, flat, circular disc has a powerful built-in chip that will allow people to locate items when connected to Apple's Find My app and can also work with Siri.

Preorders for the AirTag started on the 23rd of April, and they became readily available from May 30th. However, the AirTags sold out within minutes of the pre-order window. While Apple didn't reveal exactly how many AirTags it produced, or how many it has sold, the accessory has proven to be a hit as 75% of iPhone and iPad users said they were going to get one.

The stainless steel devices, which are water and dust resistant, feature a built-in speaker that plays sounds to better place the location of the AirTag. It's packed with the Apple-designed U1 chip, which uses Ultra-Wideband technology -- the same as the one used in the iPhone 12.

While location trackers are hardly a novel idea, like Samsung, Sony and Tile have similar products, the U1 chip featured in the AirTag will allow it to more accurately determine the distance and direction to a lost item. It also works with augmented reality, showing an animation on the screen of the user's iPhone or iPad when nearby. 

When people think of Apple, bigger products like iPhones, MacBooks, and iPads come to mind, but the company's accessories line of iPhone cases, chargers, and tablet keyboards is an important part of its revenue growth strategy.

AirTag costs $29 for a single or $99 for a set of four. Users can also decide to purchase leather accessories, such as key rings, luggage tags, and a bag charm from Hermès. Just like the Apple Watch, it's possible to add free engraving to the device.

If Apple sold 35 million AirTags in their first year, it would bring them a revenue of about $1 billion.

"Apple accessories are very important from a business perspective because they tend to be high-margin products," said Ben Stanton, senior analyst at tech market research firm Canalys. "So while accessories may not make headlines from a revenue perspective, they do have a particularly positive impact on profitability."

The arrival of AirTag will let the company expand its offerings and draw users deeper into its ecosystem as it seeks more ways to take on an expected decline in its hardware revenues. The iPhone has continued to dominate Apple's revenue in the fourth quarter of 2020, accounting for about 59% of sales, compared to the 12% from the accessories category - this includes wearables(which the AirTags fall under) and its Home line. The accessories category, however, brings in more revenue than its Mac line.

Regardless, Apple accessories are still a massive opportunity for upselling. Because the company stopped including a charger and cable in iPhone boxes upon purchase, the demand for these items has surged in the past year. "Apple itself has seen supply shortages of charging accessories in some parts of the world, causing many customers and retailers to lean heavily on third-party alternatives," said Stanton, citing anecdotes he's heard from several distributors.

In addition, the company's new smart Magic Keyboard and the Apple Pencil provide new sources of revenue streams as lower-cost iPad users are looking for more functionality.

"Although AirTags are probably going to be fairly low priced, they may help to grow revenue, and users may buy multiple tags for different scenarios, such as for a bag, bike, or car keys," said David McQueen, director at tech market advisory firm, ABI Research. "It may also spark a rise in the manufacture of accessories to house the tags, such as a key fob, keychain, or wrist strap."

Customers who aren't interested in costly smartphone and tablet upgrades may be willing to spend more on lower-cost items such as these.

Apple Financial Stand

The company's stock (AAPL) reported FY Q2 earnings (FY ending Sep) on the 29th of April, and the report revealed that the company's revenue grew by 53.6% year-on-year to stand at $89.6 billion, going 16.2% above the analysts expectations. The gross margin came in at 42.5%, while operating margin stood at 30.7% - close to 10% higher than the 22% recorded a year ago. These are all great numbers for the company, with its stock currently trading at $133.32 on the stock market.

Apple's revenue grew by a CAGR of 6.2% over the past three fiscal years. Driven by product cycles, Sell-side consensus is forecasting revenues to grow by 28.9% this fiscal year, reaching $353.9 billion, and to grow by 4.0% the following fiscal year, reaching $368.2 billion. 

In FY2020, Apple generated $73.3 billion in free cash flow up to 24.6% year-on-year - a record figure. For this fiscal year, it is expected to grow 27% to 93.6 billion.

The company is in great financial state, with return on invested capital at 32.4%, and the a net cash position of $83.5 billion on the balance sheet.