Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 101

Why the Apple watch is disruptive

A lot has been said about all the fun things the Apple watch can do for you (show you the gain on your stock portfolio, let you know when your Uber car is close) and very little on the information you provide to it, like reading your vital signs and suggesting a movie or retail therapy when your biometric data says you are low. It’s this trove of highly personalised data which has Apple and the app development community salivating: remember, you don’t have to buy the internet (ie it’s ‘free’) because it’s the internet which is selling you. And think about how Facebook started as a personal communication tool, but is now very highly-prized as an advertising platform.

Apple has said that it won’t sell your data, and that is true, to a point. Apple doesn’t sell data on you, or your friends, family, location etc. But platforms like Google, when accessed on their devices, do.

Apps include more data about you

Few people have ever really turned their minds to the question of why so many companies push their apps rather than just their web experience, but the reason is that when the app is chosen, it just about always includes much more data about you than just the web version. You can confirm this is the case by reading the terms and conditions (you knew there was a reason you should read these, right?)

Which brings us back to the biometric data. It’s early, obviously, to be making accurate predictions of what the Apple Watch means, disruption-wise, but the hard-heads in Apple have already made available the system developer kit to app designers so they can work out how to milk your biometric data.

And just like Instagram, Facebook, Google and the like, the real commercial value of the Apple watch will be in the new types of data which it makes available. What sort of data? How excited or tired you are (through the heart rate monitor), and how active you are. How would this be useful? Very active people could get a discount on their health insurance, with insurance companies using it as a marketing tool to pick up new customers.

Or how about this? Excitement levels during movies and television shows. What makes you sweat, and your heart race, and when do you feel sad during a movie or television programme. Who wants this? Well, obviously movie and television programme producers. The in-built microphone on the watch knows (through media recognition app Shazam) what programme you are watching, and when (replay, live etc), and your reactions to it. Or how about medical device companies which want to monitor your sleep patterns to provide better quality, more expensive sleep apnoea masks which work with the data the watch provides. And how about the medical research groups which require large scale, prolonged data to assess particular aspects of health?

The point is not to try and work out the different iterations of the applications themselves. Significant resources will almost certainly be devoted to this, with Apple helping to drive the process. The point is that the watch, strapped as it is to your skin, makes available a slew of data on you that has never really been available before. And it’s this data which is likely to form part of the next wave of disruption.

Of course, to the consumer, it will just be a sexy new gadget, with functionality including a pay-wave through Apple Pay, talk and text, a buzz function to get you along to the next meeting, and all the rest of the interesting, convenient and fun stuff. And that’s half the point. It has to be a must-have device in the first place to become meaningful in the installed-base sense, at which point it can become a mass marketing tool like a biometric version of Google or Facebook. And then the disruption starts.

The market will judge its success

What’s it worth on the Apple stock price? The average predicted sales from Wall Street analysts is 23.25 million Apple watches sold. At around US$1000 each (there are gold watches being sold too) that works out at $23.3 billion in sales. Assuming a gross margin of 40%, this would be pre-tax earnings of US$9.3 billion, which at the company’s multiple of 9.9x (yes, it's less than Telstra, as we noted here) works out at US$92 billion, or US$15.80 per share – this is the value already built in to the stock price. If the watch fails, the Apple stock price will fall by at least that much. And the stock won’t really move if there is a perception that 23 million units is the correct number for first year sales. But if it is ahead of that, the stock will pop, with each 23 million units worth an incremental US$15.80 per share. A little over 10% a share. And that could get your heart racing …

 

Alex Pollak is CEO of Loftus Peak, a fund manager that specialises in listed global portfolios for SMSFs. Disclosure: The author and Loftus Peak clients own Apple shares. This article is general information and does not consider the personal circumstances of any investor.

 

RELATED ARTICLES

Three main challenges to online ads and ‘surveillance capitalism’

banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Latest Updates

Shares

Exploiting Warren Buffett

Growth investors are using Buffett to justify buying blue chip stocks at almost any price. It’s a recipe for potential disaster, as investors in market darlings like CBA and Cochlear may be about to find out.

Property

Population density trends and what they mean for housing

With Australia’s population moving through the fastest rate of growth since the 1950s, our cities and towns are naturally densifying. This is a look at the latest trends and how they will impact the property market.

SMSF strategies

The ultimate superannuation EOFY checklist 2024

We're nearing the end of the financial year and it's time for SMSFs and other super funds to make the most of the strategies available to them. Here's a 24-point checklist of the most important issues to address.

Shares

The outlook for Nvidia, from a long-time investor

Nvidia has taken the world by storm and is now the third largest stock on the planet - larger than Meta, Amazon, and Alphabet. Here is the latest take on Nvidia from a fund manager who first invested in the company in 2016.

Economy

Gross National Happiness?

Despite being richer, surveyed measures of happiness have been flat to falling in Australia. Some suggest we should focus less on GDP and more on broader measures of wellbeing, though there are pros and cons to that approach.

Shares

The power of dividends

In an era where growth companies dominate and the likes of Nvidia grab all of the attention, dividend paying stocks are flying under the radar. Some of these stocks offer compelling prospective returns.

Fixed interest

The best opportunities in fixed income right now

After more than a decade of pitiful yields, bonds are back offering better prospects for income investors. What are the best ways to take advantage of the market inefficiencies in Australian fixed income?

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.