Apple's impressive App Store growth continues to be overlooked by Wall Street, Macquarie says
Apple revealed this week that its iOS App Store had a record July with $1.7 billion in transactions. But investment firm Macquarie Securities believes Wall Street isn't paying enough attention to Apple's growing and highly profitable services business.
Analyst Ben Schachter on Friday issued a note to investors, a copy of which was provided to AppleInsider, in which he noted that the App Store is the fastest growing operating profit driver for Apple. For the full calendar year 2015, Apple is on pace to generate more than $5 billion in operating profit, accounting for 45 percent of expected operating profit growth.
Schachter expects that by fiscal year 2017, Apple's services business will grow to about 10 percent of the company's sales and nearly a quarter of its earnings before interest and tax.
"Our focus remains on app sales," he wrote. "Given the massive coverage of AAPL's hardware supply chain, we continue to differentiate by focusing on software and services, and in particular, on apps."
To Schachter, if iPhone sales flatten or begin to decline, the iOS App Store will be a key drive of gross and operating profit growth. In his view, Apple's App Store business is "underappreciated" by investors.
Apple announced earlier this week that it has paid about $8 billion to developers thus far in 2015. That implies more than $11 billion in gross billings and $3.4 billion in net revenues, based on the company's 30 percent cut of all sales.
Since the App Store launched in 2008, Apple has paid $33 billion to developers.
Analyst Ben Schachter on Friday issued a note to investors, a copy of which was provided to AppleInsider, in which he noted that the App Store is the fastest growing operating profit driver for Apple. For the full calendar year 2015, Apple is on pace to generate more than $5 billion in operating profit, accounting for 45 percent of expected operating profit growth.
Schachter expects that by fiscal year 2017, Apple's services business will grow to about 10 percent of the company's sales and nearly a quarter of its earnings before interest and tax.
"Our focus remains on app sales," he wrote. "Given the massive coverage of AAPL's hardware supply chain, we continue to differentiate by focusing on software and services, and in particular, on apps."
To Schachter, if iPhone sales flatten or begin to decline, the iOS App Store will be a key drive of gross and operating profit growth. In his view, Apple's App Store business is "underappreciated" by investors.
Apple announced earlier this week that it has paid about $8 billion to developers thus far in 2015. That implies more than $11 billion in gross billings and $3.4 billion in net revenues, based on the company's 30 percent cut of all sales.
Since the App Store launched in 2008, Apple has paid $33 billion to developers.
Comments
Huh. It's not a break-even business for Apple after-all. Not even close despite what some members here imply or outright claim.
http://forums.appleinsider.com/t/187166/apples-app-store-policies-for-streaming-music-apps-under-ftc-scrutiny-report-says#post_2746837
Haha but you forgot the /joke
Are you familiar with the concept of "change over time," or is reality just one static state to you?
If Wall street analysts really took a serious look at Apple, I somehow doubt that stock prices were going to be performing this poorly.
I just did a search on three tech stocks. AMZN, GOOG and AAPL. A trend line for the last three months shows AAPL steady with a slight dip in the last couple of weeks.
On the other both AMZN and GOOG have been steady then a sudden jump upward in the month of July, leading to August. Why?
What did they announce to garner that much attention?
Apple has been slowly but steadily growing its business through small but calculated steps. The app store is but one of those components.
Yes iPhone sales do dominate, but how can one discount a very strong and growing Mac division and software/services division?
Like Gruber said, after quarterly statements, all of Wall street must be getting pissed drunk. It's the only way to explain why AAPL has been performing the way it has, despite record breaking quarters.
Speaking as a neophyte of neophytes, at least as far as investing is concerned, maybe someone here can rationally address something that has been lurking in the back of my head for the past week or so.
Clearly Apple is one of the most successful corporations on the planet, for the past decade or so. Is it possible that, from a macro-economic standpoint, there might be external concerns about too much wealth being amassed in one handbasket, and these market manipulations are attempts to temper that, on someone's part (or groups of someones)?
It sounds paranoid, I agree. I'm just searching for logic and meaning in the chaos.
The "old timers" among the Wall Street" crowd have been angry and dismissive of Apple SINCE the 90s! (They couldn't stop the Apple WAVE) I remember wanting to put money in Apple to buy stock. My friend Bernie, a smart guy was NOT keen on it. I asked him for a recommendation on something "stable." I can't remember what third stock he mentioned. His anti-Apple stances fell flat. My Apple stock split. American Express was wrong, etc. Everytime Apple had performance improvements they LIE their way through it.
I had to INSIST on buying Apple. It is being manipulated and by those analysts who are really, .... idiots. They should be investigated.
If Wall street analysts really took a serious look at Apple, I somehow doubt that stock prices were going to be performing this poorly.
I just did a search on three tech stocks. AMZN, GOOG and AAPL. A trend line for the last three months shows AAPL steady with a slight dip in the last couple of weeks.
On the other both AMZN and GOOG have been steady then a sudden jump upward in the month of July, leading to August. Why?
What did they announce to garner that much attention?
Apple has been slowly but steadily growing its business through small but calculated steps. The app store is but one of those components.
Yes iPhone sales do dominate, but how can one discount a very strong and growing Mac division and software/services division?
Like Gruber said, after quarterly statements, all of Wall street must be getting pissed drunk. It's the only way to explain why AAPL has been performing the way it has, despite record breaking quarters.
You speak the truth @TheDBA.
AAPL continues to be manipulated by the "analyst speak" on wall street. It's commonly shorted by investors so the dips become common. Long-term investors know the true value of Apple's stock and know that it will continue to gain value. Smart investors buy AAPL during these dips. The quarterly and annual earnings and profits that Apple reports would make any other corporation's stock go through the roof. Instead they get punished for not breaking out the Apple Watch sales or some other unproven supply chain rumor, etc.. One thing the analysts seem to be unable to wrap their heads around is that MARKET SHARE DOES NOT ALWAYS EQUAL PROFIT. The technology graveyard is filled with companies that had management who didn't understand that. Apple almost became one of them before Steve Jobs came back to run the company.
Amazon is valued mostly on it's cloud services. The online retail has slim margins and other vendors are selling and Amazon is just the distributor. The Fire product line has had moderate success. The Fire Phone failed miserably in their attempt at creating a branded smartphone. When their phone died a slow death it was hardly noticed by Wall Street.
As we all know Google's value is collecting targeted data and using it to sell advertising. Google knows more about you than your own mother. Their Google+ service has been mediocre even though they almost force users to join. Mapping and search are their cash cows. Google makes a huge amount of cash from their iOS apps, probably more than from Android apps. Android is coming under attack and because of the open source it's up to manufacturers and carriers to send out updates and fixes. That's fine for the market leaders like Samsung, HTC, Motorola, and LG but the smaller guys don't have the resources and count on the carrier in most cases. Not a high priority for Verizon, AT&T and the others. Google of course is taking care of the Nexus products first. Why this doesn't affect Google's stock who knows. Will it move smartphone users to iPhone? Probably some but the most problematic phones are cheap giveaways that are on special plans and the users can't afford an iPhone.
While the overall PC market continues to decline Mac sales continue to rise. IBM is replacing their corporate workstations with Mac's. As the computing world continues to evolve. It won't matter what device the typical end user is using. There are those that use special applications that will require specific hardware for the time being. Microsoft is turning in the right direction with Windows 10. It's a step toward the future of computing. The Microsoft Office applications are migrating to other platforms and I have to say that the iOS versions are almost better than the Windows versions. Last year I bought a new laptop. I have said it will be the last of the current generation of laptops that I will buy. Before it outlives it's useful life the computing world will have evolved and it will be an antique.
Apple is simply an anomaly. It should not be this successful. It defies logic. Tech bloggers hate it. Apple is for grandmas and kids, and millennial hipsters. Look how Anand got treated for daring to say positive things about Apple products. Windows is cool. Android is cool. Walled gardens from Microsoft and Google are cool. But Apple deserves scorn. Apple should not be this successful. They rally their pitchforks and photoshop more LOL@APPLE pics, becuase the more successful Apple is, the more enraged they get.
They call Apple users a cult. What about the irrational, factless Cult of Apple Hatred?
You cannot view the actions or reasoning of millions of people and businesses in the same way you may view an individual's actions or reasoning. Every person has their own motivations and values.
Speaking as a neophyte of neophytes, at least as far as investing is concerned, maybe someone here can rationally address something that has been lurking in the back of my head for the past week or so.
Clearly Apple is one of the most successful corporations on the planet, for the past decade or so. Is it possible that, from a macro-economic standpoint, there might be external concerns about too much wealth being amassed in one handbasket, and these market manipulations are attempts to temper that, on someone's part (or groups of someones)?
It sounds paranoid, I agree. I'm just searching for logic and meaning in the chaos.
AAPL is a favorite for investors to short sell. The analysts come up with crazy statements that cause the stock to fluctuate. Since most of Apple's income comes from their iPhone business there is always fear that the smartphone market will drop. Apple only sells to the high end of the market so that makes the analysts even more jittery. Apple continues to innovate in each new iPhone model with new versions of iOS, faster processors (and the first with 64-bit), better battery life, fingerprint authentication, tools for developers, etc.. Since the update cycle on smartphones is typically two years the market refreshes in that time and sometimes even less. Apple just reported quarterly earnings that would be the envy of any other corporation. Instead the analysts punished them because they didn't break out sales of the Apple Watch. Analyst also rely on unreliable supply chain information to guess future Apple sales. Apple uses many different suppliers so the information is almost always inaccurate. Rumors abound about Apple since they are very secretive about new products. Apple won't release a product unless they feel it's ready. They have had their share of duds (maps, antennas). They are commonly not the first to the market but often the best. (I'll get a lot of grief about that statement)
Had Mr. Jobs not "bet the house" on the iPhone they might still be just another tech player. Their massive success over the past 7 years can be attributed to that one product making it a great call by a man who despite any other faults he might have had certainly had vision. Success like that doesn't happen often.
If Jobs hadn't bet the house on the iPhone it's likely that Apple would have eventually filed bankruptcy and closed it's doors. It's possible that they could have been purchased by another company (doubtful because of Jobs ego) or gone private with investor cash out of the market scrutiny.
If Jobs hadn't bet the house on the iPhone it's likely that Apple would have eventually filed bankruptcy and closed it's doors. It's possible that they could have been purchased by another company (doubtful because of Jobs ego) or gone private with investor cash out of the market scrutiny.
I'll disagree with that statement, since the apple of 2007 is nowhere close to the Apple of 1997.
By 2007, Apple already had quite a bit of revenue coming in from their iPod/iTunes business and a growing Mac division.
I do agree however that the mobile world would've been very different. Dominated by Windows phone and BlackBerry? Yeeeeeesh!
Oh the "one trick pony" meme again.
But what would the Apple of 2015 look like without the iPhone? People would've started streaming music through their BBs, and Win phones which would've decreased the sales of iPods, and music purchases. I completely agree with the OP's assessment.