The Impressive Growth of the Apple Watch

Back in late 2014, Apple (NASDAQ: AAPL) introduced its first wearable-device product, the Apple Watch. The device, though limited in functionality, proved to be relatively successful.

Since then, Apple has continued to improve on the Apple Watch, bringing out models with faster processors, more sensors, improved display technology, and -- most recently, with the Apple Watch Series 3 -- support for LTE connectivity.

That relentless pace of innovation is clearly paying off, as Apple's most recent financial results indicated.

Huge growth

On the call, Apple CFO Luca Maestri said the Apple Watch enjoyed unit growth "of over 50% for the third consecutive quarter."

Adding some additional color, Maestri said the company's "entire wearables business was up 75% year over year in the fourth quarter" and noted that for the entirety of its fiscal year 2017, the business "already generated the annual revenue of a Fortune 400 company."

Now, that Fortune 400 tidbit doesn't tell us exactly how big the Apple Watch business is, but it does tell us that it generated at least $6.7 billion in sales during that period. That's the revenue of No. 400 on the Fortune 500 list.

The Apple Watch still doesn't generate anywhere near the kind of revenue its iPad and Mac businesses do, let alone what its services or iPhone businesses do, but the category is still quite young, and the trajectory still looks great.

The future

It's not clear how long Apple can sustain the 50%-plus quarterly growth rates that it has enjoyed in its Apple Watch business, but I do think that with a continued, relentless pace of innovation, it can continue to enjoy double-digit percentage revenue growth in the Apple Watch for many more quarters.

It might not be a stretch to see total Apple Watch revenue begin to rival that of the iPad or even the Mac in due course, especially as those two product categories aren't growing at anywhere near the pace the Apple Watch is.

The good news for Apple is that there's still plenty more room left to improve the device from both hardware and software perspectives. The processing power Apple can cram into future Apple Watches has plenty of room to grow, which could lead to a corresponding increase in the richness and variety of the applications that'll run on them.

There are also opportunities for battery life improvements, even under relatively high-stress conditions, such as streaming music over LTE, as Apple and its suppliers improve the efficiencies of the technologies that go into future Apple Watches.

On top of that, Apple could explore adding new features such as a camera, improved haptics, and better display technology.

Beyond technology improvements, Apple may eventually introduce form-factor changes that could further boost the appeal of the device, especially to more fashion-conscious buyers. However, considering Apple is still ramping up the features and capabilities of the Apple Watch, my guess is that Apple will prioritize feature enhancements over form-factor changes early on.

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Ashraf Eassa 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: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.