Apple Is Ready for Big Growth in Wearables This Holiday Season

In Apple's (NASDAQ: AAPL) third quarter of fiscal 2019, a surprising segment contributed more to the company's growth than any other segment. Revenue in the tech giant's "wearables, home, and accessories" segment increased by $1.8 billion -- a larger year-over-year jump than any other Apple segment. This is notable since this was Apple's smallest segment in fiscal 2018, and even after its sharp growth recently, it's still Apple's second smallest segment and accounts for only approximately 10% of total revenue.

The segment's wild 48% year-over-year growth in fiscal Q3 was driven by continued strong demand for the company's wearables products, namely its Apple Watch and AirPods.

Going into Apple's first quarter of fiscal 2019 -- a period that coincides with the important holiday season -- the company is prepared to capitalize on this segment's strong momentum with new products.

A woman wearing Apple's AirPods Pro

AirPods Pro. Image source: Apple.

Five new wearables products

Management is well aware of the strong sales growth its wearables products, or sales of its Apple Watch, AirPods, and Beats headphones, are seeing. The company calls out the strong year-over-year revenue growth from wearables every quarterly update. In Apple's fiscal third-quarter earnings call, CEO Tim Cook said it was a "blowout quarter for wearables, where we had accelerating our growth of well over 50%."

With such significant momentum, it's no surprise that Apple has been doubling down on the segment with new offerings. Between last holiday season and the upcoming holiday season, Apple launched Powerbeats Pro and Solo Pro earphones under its Beats by Dre brand, second-generation AirPods and AirPods Pro earphones under its namesake brand, and the Apple Watch Series 5.

With a lineup like this, it wouldn't be surprising to see more 50%-plus year-over-year growth in wearables revenue yet again in Apple's fiscal first quarter. This would be likely to translate to a similar growth rate in Apple's wearables, home, and accessories segment.

Previewing the holiday quarter

While investors will have to wait until Apple reports its fiscal first-quarter results to know how well wearables products performed during the holidays, investors may get a glimpse into how the products have started off the important quarter when Apple reports its fiscal fourth-quarter results after the market closes on Wednesday.

In addition to getting a timely update into Apple's wearables, home, and accessories segment's performance during fiscal Q4, management may discuss how customers are responding to its robust lineup of new wearable devices in the current quarter, as Apple reports its fiscal fourth-quarter results a month into its fiscal first quarter.

In particular, investors should look for some commentary from management on demand and/or sales trends of the company's September-launched Apple Watch Series 5 and its October-launched AirPods Pro. Apple Watch and AirPods have historically represented the segment's biggest drivers. Optimistic commentary on these products, therefore, would imply Apple's wearables, home, and accessories segment is set up for another good holiday season.

But given the segment's recent strength and Apple's efforts to overhaul its wearables business with fresh new products, it's safe to forecast more strong growth.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple and recommends the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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