Recently, Apple‘s (NASDAQ:AAPL) services business has gotten much of the credit for the stock’s great performance. This is only fair, given that in fiscal 2019, services revenue grew at a rapid year-over-year clip of 16% and the segment boasted a 64% gross profit margin — twice the gross profit margin of Apple’s hardware sales.
But investors shouldn’t overlook Apple’s smallest but fastest-growing segment, referred to as “wearables, home, and accessories.” The segment, which includes sales of wearables devices like Apple Watch, AirPods, and Beats-branded earphones, as well as Apple’s HomePod and other accessories, is seeing explosive growth. Better yet, the segment likely kept up this strong growth in the tech giant’s important holiday quarter.
In fiscal 2019, Apple’s wearables, home, and accessories business saw revenue rise 41% year over year to $24.5 billion. But this understates the segment’s momentum today, as its growth accelerated in the second half of the year.
Fiscal Q4, in particular, was a strong period for the segment. Wearables revenue rose 54% year over year — up from 48% growth in fiscal Q3. Management noted in the company’s fiscal fourth-quarter earnings call that growth rates for the segment accelerated in all five of Apple’s geographic segments.
“The performance was driven by tremendous growth across Apple Watch, AirPods, Beats products, and accessories,” explained Apple CFO Luca Maestri during the tech company‘s earnings call. “And … we set Q4 records for our wearables category in every single market we track around the world.”
Key catalysts for the holiday quarter
The real gem in this segment is the wearables business specifically: Apple Watch, AirPods, and Beats products. Apple CEO Tim Cook said in the company’s fiscal first-quarter earnings call that wearables revenue increased by a rate “well over” 50% during the period. Further, Cook also noted that wearables, specifically, saw accelerated growth during the period.
Importantly, there are several reasons to expect more strong growth from wearables during Apple’s important holiday quarter. First, Apple launched the latest version of its popular Apple Watch just a few weeks before its fiscal first-quarter started. Second, it launched an entirely new version of its AirPods earphones on Oct. 30. The wireless earphones have been extremely popular and the new version adds two new major features: noise cancellation and adjusted ear tips for a custom fit.
Based on recent rapid growth in Apple’s wearables, home, and accessories segment and the launch of two new wearables products just in time for the holidays, the important segment looks poised to grow at a similarly strong rate in fiscal Q1 as it did in fiscal Q4.
Investors can find out more about how Apple’s wearables, home, and accessories segment performed when the company reports its fiscal first-quarter results on Jan. 28.