Wednesday, July 22, 2015

Apple Watch - By my estimates, worth $1.318 Billion in Revenue



Been trying to work out the effect the Apple Watch is having on Apple Revenue. Always difficult to judge when the data isn't listed in the Divisional summary of the earnings report. Still, you can always try some regression analysis to figure out what is going on.


Firstly, you need to seasonally adjust the Quarterly revenue statements of the "Other Product" categories in the Apple financial reports.


To find the seasonal signal, I have found the 4 period moving average for the quarterly revenues since 2012. I have then averaged the residuals (of the difference between the raw figure and the moving average) to come up with the Seasonal factors for each quarter. I have then removed this factor from the raw figures to come up with a Seasonally adjusted data set. Results below.


                       Raw Average Residual Average Residual SA Series
2015.2 1689 2010.25 -321.25 -299.6666667 1988.666667
2015.1 2689 2058 631 836.5833333 1852.416667
2014.4 1896 2094.75 -198.75 -483.6666667 2379.666667
2014.3 1767 2093.75 -326.75 -532.5833333 2299.583333
2014.2 1880 2130 -250 -299.6666667 2179.666667
2014.1 2836 2245.25 590.75 836.5833333 1999.416667
2013.4 1892 2529.25 -637.25 -483.6666667 2375.666667
2013.3 1912 2575 -663 -532.5833333 2444.583333
2013.2 2341 2668.75 -327.75 -299.6666667 2640.666667
2013.1 3972 2684 1288 836.5833333 3135.416667
2012.4 2075 2690 -615 -483.6666667 2558.666667
2012.3 2287 2895 -608 -532.5833333 2819.583333
2012.2 2402 3199 -797 -299.6666667 2701.666667
2012.1 3996 3996 0 836.5833333 3159.416667


I then calculated the trend of this Seasonally adjusted data set (works out to be -81.551*Number of time periods + 3078.4)



Extending this trend into the Q3 2015, brings as a Seasonally adjusted value for "Other Product" revenue of $1.855 billion.


Adding back the average residual for Q3 (-532 million) to this figure, leads us to an estimated raw trended figure of  $1.322 Billion.


So this figure represents what Apple Should have earned in Q3 2015 from "Other Products" if the trend over the last 3 years continued.


But Sales from this division actually produced $2.641 billion. We make the assumption that the difference was revenue from sales of the Apple Watch.


That means Apple Watch produced $1.318 billion in sales over the last quarter. Not bad, but not the $1.8 billion the investors expected.


Hence the Apple shares are down.



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