Apple commands smartwatch profit & Apple Watch Ultra will grow this lead

Investment bank JP Morgan says that on top of already dominant Apple Watch earnings, the Apple Watch Ultra could represent $10 billion more revenue from extreme sports users.

JP Morgan's product availability tracker has recently reported strong demand for the iPhone 14 Pro, and its analysts have now concluded at the Apple Watch Ultra is also a significant success.

"Apple Watch Ultra lead times have tracked anywhere between 25-45 days since initial availability, which compares to 9-30days for the Series 8 and 5-10 days for the SE variants," say JP Morgan analysts in a note seen by AppleInsider. "In our view, we believe the elongated lead times for the Apple Watch Ultra suggests early success relative to customer reception with the newer model, which has sustained at least over the first six weeks since initial launch."

The firm describes the Apple Watch Ultra as Apple's first, and so far only, entry into what it describes as the Premium Smartwatch market.

"We estimate the premium Smartwatch opportunity for Apple ranges between $10 bn to $38 bn," continues the report, "with the low-end of the range encompassing the upgrade of consumers focused on Sports, while the high-end of the range encompasses all consumers focused on basic features, like better battery life."

Even before the addition of the Apple Watch Ultra, JP Morgan notes that Apple was already leading the whole smartwatch market in terms of unit sales and especially revenue.

It says that Apple Watch has 48% of the market, but also a 62% share of revenue. The Apple Watch Ultra is not the only premium watch, however.

"[Direct] direct competitors, like Garmin, have a premium positioning in the market as well," says JP Morgan, "with their portfolio comprising Sports focused watches priced in the range of $700-$1,000 and Premium watches priced in the range of $1,500-$2,500."

By comparison, the Apple Watch Ultra sells for $799. "[We] see a roadmap for Apple to launch more premium watches to extend the portfolio," says JP Morgan's report.

Smartwatch market maturing and Apple's share declines

The investment report notes that despite Apple being the dominant leader in the market, it has annually been ceding around 175 basis points.

Across all business types, 1 basis point represents 0.01% of a value, in this case of Apple's unit shipments. So JP Morgan is saying that "despite growing double-digits most years," Apple's overall share of the market has been declining by about 1.75% annually.

Since sales are going up, this decline in share is due to the rise of alternatives. JP Morgan says that Samsung and Garmin have been gaining around "50bps or less per year."

Currently, JP Morgan estimates Apple as having 48% of the market while Samsung is on 15%, Garmin on 8%, and Google on 6%. The company says Google's rise to 6% from its previous 2% is down to its acquisition of Fossil.

How the Apple Watch Ultra and Apple Watch Series 8 models interest current Apple Watch users who are looking to upgrade

The future of Apple Watch Ultra

JP Morgan reports that based on its own user survey of existing Apple Watch users looking to upgrade, roughly half were intending to buy the Apple Watch Ultra.

"As a result, we see a more targeted consumer base in relation to athletic users, both from the installed based as well as switchers finally willing to adopt Apple Watch as performance gear," continues the report. "However, the bigger demographic opportunity lies in relation to upgrading the existing Apple Watch installed base led by better battery life as the primary driver."

JP Morgan bases its claim of $10 billion revenue for the Apple Watch Ultra on an estimate of "the portion of the Apple installed base that is looking for a watch tailored for Extreme Sports."

"However, interest in Ultra extends beyond Extreme Sports into Battery Life and drives a bigger opportunity of $38 bn," it continues.

JP Morgan set a price target for Apple stock at $200 in April 2022. This latest report retains that same target.