A Deep Dive Into Apple's (AAPL) Time Flies Event, and What Investors Should Watch

Close-up of Apple iPhones on display
Credit: Edgar Su / Reuters -

Those of us who are at a certain age remember marveling at the sheer futurism of a certain hard-nosed comic detective as he barked into his 2-way wrist radio. Week after week, in the longest running comic strip that debuted in 1946 and is still in publication) Dick Tracy puts the bad guys away. In the ‘60s, a video component was introduced to his wrist radio, but it wasn’t until 2017 that owners of Apple's (AAPL) Apple Watch Series 2 could indulge in that type of futuristic communication. Today, these connected wearables are poised to raise data privacy concerns and create a profound opportunity for those companies that can earn consumers’ trust.

While Apple did not invent the “wearables” category, it elevated both the functionality and aesthetic appeal of these devices, as is often the case with this company. In the purest definition of technology, it could be said that wearables have been with us for centuries and include such long-time favorites such as glasses and hearing aids. Modern day wearable electronic devices began to proliferate in the 80s when the Casio wristwatch calculator (and dictionary) were introduced in 1980 and 1984, respectively.

It wasn’t until the turn of the 21st century when the combination of mobile broadband and apps intertwined that wearables started to resemble what users have today. As computer processor power continued to follow Moore’s Law, these devices began to have utility on their own. Early step counters produced by team-ups between fitness companies like Nike (NKE) and tech companies such as Apple gave runners useful workout stats. These early collaborations evolved into single providers like Fitbit Inc (FIT), which developed fitness trackers as the earlier chest-strap based heart monitors gave way to wrist based pulse, step, elevation and sleep monitors that can also alert you to phone calls, texts and other smartphone pings.

This week at its “Time Flies” event, Apple debuted its latest set of connected watches, expanding its product offering across various price points and introduced a new bundled service offering as well as Apple Fitness+ that could spur adoption of its wearables. Let’s dig into the details.

Apple Watches

The new flagship model introduced Tuesday, which will be available for purchase as of September 18, is the Apple Watch 6. Compared to the prior model, the 6 includes a blood-oxygen sensor that takes real-time readings in 15 seconds. It also charges 20% faster than Watch 5, has a brighter always-on screen, and supports 5GHz Wi-Fi. All in all, once again there are incremental updates with the new model but given the COVID-19 pandemic, the inclusion of the blood-oxygen sensor could very well lead to a stronger-than-expected upgrade cycle among the Apple faithful as well as attract new customers. Apple also introduced a new lower-cost model, the Apple Watch SE, that will reportedly merge the design elements of its newest model with a more limited selection of apps at a starting price point of $279 vs. $399 for the base Apple Watch 6 model. Rounding out its watch offering, Apple continued to keep its Series 3 watch in the lineup with an entry price at $199.

Apple Fitness+

Leading up to the "Time Flies" event, there was internet chatter that Apple would challenge Peloton (PTON)Lululemon’s (LULU) Mirror, and others with a digital fitness offering, and that chatter proved to be correct as Apple unveiled Fitness+. This service is compatible with the metrics tracked by the Apple Watch, including heart rate, calories burned, pace and distance, and features a variety of workout videos that can be accessed from an iPad, iPhone or Apple TV running the gamut from yoga and dance to strength training, leveraging -- you guessed it -- tunes from Apple Music.

One of Apple’s key differentiators has been its tight integration of hardware, software and services, and we once again see that with Fitness+. For example, Apple Watch metrics mentioned above will be displayed not only on the watch face but also on the screen of the iPad, iPhone or Apple TV that is being used to watch the workout video. When a trainer says to check your heart rate, that metric will animate on the screen as well.

In our view, tying Fitness+ to Apple Watch is a timely move given the growing digital exercise market, particularly amid the pandemic-induced everything-from-home life many of us are forced to live these days. Like it has typically done, Apple has not created the market, but turned it on its head. For Apple, the pairing targets not only spurring the company’s hardware sales but growing its Services business as well, while building on its prior heath-focused initiatives with Apple Watch.

The Apple faithful will see this as the company living up to CEO Tim Cook’s January 2019 comment that Apple’s greatest contribution will be about health, while others will correctly notice Apple is looking to capture a part of the global healthcare service market that is expected to reach $11.9 trillion by 2022. We are sure that the new “Bike Bootcamp” email that was sent to subscribers from Peloton less than an hour after the Apple event was pure coincidence.

Historically when Apple has reset the bar, as it did with the all glass, touch-sensitive screen for the iPhone for example, before too long others introduced similar features and capabilities. Given the size of the healthcare service market and the global physical activity market that the Global Wellness Institute sees reaching $1.1 trillion by 2023, we suspect other companies ranging from Alphabet (GOOGL) and Amazon (AMZN), to Facebook (FB) and others, will look to tap into that spending in a greater way.

In late 2019, Google announced it would look to acquire wearable company Fitbit in a $2.1 billion transaction, while more recently Amazon introduced its Amazon Halo Band wearable device and the accompanying AI-powered Amazon Halo app.

Health Data and Your Privacy

Given the passage of the General Data Protection Regulation in Europe, the California Consumer Privacy Act, New York's Stop Hacks and Improve Electronic Data Security Act and other data privacy regulations being implemented, the odds are rather high that wearables and healthcare-facing apps and services will be an area of focus given the particularly sensitive healthcare facing data being collected. This past August, the European Commission announced it would open an in-depth investigation into the Google-Fitbit deal, given competitive concerns over Google's ability to use data collected from Fitbit wearables to make ad-targeting decisions. This follows the January 2019 news that UK legislators wanted an explanation from Google’s DeepMind AI operation why it was transferring control of Streams, a digital health app it developed using NHS identifiable patient data, over to Google itself.

As technology evolves in ways that give us more tools to manage our health, we expect that protecting the sensitive nature of the data these tools generate will become increasingly important to consumers. Those companies that place privacy at the forefront of their offerings and have it deeply embedded in its devices and operations are more likely to win the hearts and dollars of consumers.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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