Neil Hughes
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.
Thomas Sibilly
Marko Zivkovic
Wesley Hilliard
Andrew Orr
Christine McKee
Malcolm Owen
38 Comments
[quote name="AppleInsider" url="/t/187539/apples-impressive-app-store-growth-continues-to-be-overlooked-by-wall-street-macquarie-says#post_2757863"]Apple revealed this week that its iOS App Store had a record July with $1.7 billion in transactions.... 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. [/quote] 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
[quote name="Gatorguy" url="/t/187539/apples-impressive-app-store-growth-continues-to-be-overlooked-by-wall-street-macquarie-says#post_2757865"] Huh. It's not a break-even business for Apple after-all. Not even close.[/quote] Haha but you forgot the /joke
[quote name="Gatorguy" url="/t/187539/apples-impressive-app-store-growth-continues-to-be-overlooked-by-wall-street-macquarie-says#post_2757865"] 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[/quote] Are you familiar with the concept of "[URL=http://www.asymco.com/2013/03/22/so-long-break-even/]change over time[/URL]," or is reality just one static state to you?
[quote name="Suddenly Newton" url="/t/187539/apples-impressive-app-store-growth-continues-to-be-overlooked-by-wall-street-macquarie-says#post_2757887"] Are you familiar with the concept of "[URL=http://www.asymco.com/2013/03/22/so-long-break-even/]change over time[/URL]," or is reality just one static state to you?[/quote] Apparently it might be a new concept to some of those folks arguing against me in the thread I linked. Certainly not a new concept to me.
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.