Apple began taking orders for its watch on Friday.
The watch can range from mere technological marvel to a masterpiece of precious metal, depending on one’s budget.
However, this remarkable feat of engineering will likely not have the battery power to change the company’s earnings.
If you spend some time looking at the numbers, even a year of boffo sales may do little to move Apple’s stock price.
Evidence: Apple’s share price since its much-anticipated early-March announcement of the digital timepiece. It’s flat — down 4 cents.
And don’t forget that during that time, Apple was also added to the Dow Jones industrial average, which buoyed buying by large institutions.
For almost any other company, a new-product launch that sells $2 billion worth in its first year would be a home run — heck, a grand slam.
Initial estimates for the Apple Watch range from 7.5 million units to a high of 31 million watches in year one.
Prices start at $349 and go all the way up to $17,000 for the luxurious 18-karat rose gold timepiece. Mind you, they all have the same functionality.
Assume an average selling price of, say, $500. There’s no cell carrier discounting here as with the iPhone.
And we generously presume Apple will sell 10 million to 15 million watches the first year.
That equates to $5 billion to $7.5 billion in revenues. If we charitably extrapolate Apple’s net-profit margins of 21.6 percent to this new, design-heavy product, we come up with $1 billion to $1.6 billion in net profit.
Again, it’s important to recognize that Microsoft, IBM or Google would kill to have this kind of success.
For Apple, however, it’s barely a tick.
Last fiscal year, which ended in September 2014, Apple posted $182 billion in sales and realized $39 billion in net income.
In other words, the Apple Watch is financially a rounding error to Apple — much like the Beats acquisition, which also was cool, had good media buzz and generated lots of excitement, but is completely inconsequential and immaterial financially.
So if you’re deciding whether to buy Apple’s stock based on the watch sales, or you’re an analyst issuing research reports that claim the Apple Watch will drive the stock price, you are missing the point.
Apple’s stock price is driven by the engineers in the C-Suite, with a large assist from activist shareholder Carl Icahn.
The sheer size of Apple’s buyback — $56 billion in 2014 — along with the iPhone’s massive 41.3 percent US smartphone market share, will dictate where the stock goes.
At 17 times earnings, any excess bidding that buyers may have been doing due to the hype surrounding the watch could prove imprudent.
Whether the watch is a success or a flop, it will move the second hand on Apple’s stock price for but a minute.