Apple's Growth Now Lies in App Store and Search Ad Businesses
What would the world be without bullish stock market analysts? They make investment and stock trading an altogether brighter affair, and experienced bulls often have solid reasons behind their optimism. It isn't simply patching up the gloom with a song.
A bullish analyst estimates that Apple's ($AAPL) app store ad division could hit $2 billion by 2020. As the company approaches the posting of its Q4 earnings at the beginning of November, the analyst echoes the optimism of CNBC towards Apple's software and services division and believes a tremendous growth opportunity lies here. This Investopedia article explains it.
More Earning Potential from Apple Music, App Store and iCloud
It's no secret that Apple's core iPhone business has been declining. Apple was the first US company to exceed market capitalization of $1 trillion earlier in 2018. The higher ASP (average selling prices) for the company's higher margin devices are something the investors have been happy about. This has helped Apple to offset the decline it's been experiencing in the smartphone market. It has also helped protect the company against the longer replacement cycles for the iPhone. Now much of Apple's recurring revenue comes from Apple Music, Apple App Store and Apple iCloud. Streaming music provider Apple Music is particularly strengthening its position against rivals such as Spotify ($SPOT).
Apple's Expanding Search Ad Business
Another great earner for Apple is its Search Ad business. According to Tony Sacconaghi, a Bernstein analyst who spoke to CNBC, the Search Ad business has the potential to generate revenue exceeding $500 million this year which could quadruple to $2 billion by 2020. This ad business of Apple works in a similar manner to Google's ($GOOGL) search ads. Apple enables app developers to purchase specific keywords to keep their Search Ads appearing on top of the App Store pages. Apple can also expand Search Ads in new markets such as China where the market opportunity is great, reckons Sacconaghi. As of now, Search Ads have a limitation of one per page.
As per the Bernstein forecast, Search Ads would expand to the similar size of Apple Music in 2017, but with higher gross margins. The growth of the Search Ad business to $2 billion in 2 years is forecasted by the Bernstein analyst Sacconaghi, but even that is considered a conservative forecast by him. Apple is also expected to meet or even exceed its target to double its Services top line to touch $49 billion by 2020-end.
Apple Outperforms the S&P 500 in YTD
Apple stock displays a year-to-date (YTD) rate gain of 28.3%, which comfortably outperforms the 1.5% return of the S&P 500 at the same period. On the morning of Tuesday, October 24, Apple was trading at $217.14, down by around 1.6%.
With these insights, you get a better perspective of the stocks you're considering, which in this case is Apple. Another thing that helps you trade effectively is the trading software. An advanced and user-friendly platform makes the trading experience better and more informed. TradeZero gives you advanced and free trading software for novices as well as seasoned traders. Call us at +1 954-944-3885. You can also email us at firstname.lastname@example.org.
The content provided here is solely for informational and educational purposes and does not constitute an offer to sell or a solicitation to buy any security or instrument which may be referenced upon the site, or an offer to provide advisory or other services by TradeZero in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Investors are advised not to rely on the information contained in this writing to make an informed investment or financial decision. TradeZero explicitly disclaims all liability for any action taken based on any information contained in this writing.