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Apple (AAPL) Witnesses Strong Momentum in App Store, Services

Zacks Equity Research

Apple AAPL recently released a year-end retrospective of its Services business, which includes the App Store, Apple Music, iCloud and, new in 2019, Apple Arcade, Apple TV+, Apple News+ and Apple Card.

Notably, Apple expects the number of paid subscribers to surpass 0.5 billion in 2020. For first-quarter fiscal 2020, revenues are projected between $85.5 billion and $89.5 billion.

We believe that rising spending on apps, and the success of wearables such as AirPods and Apple Watch highlight Apple’s ability to generate more revenues despite sluggish iPhone growth. This is expected to drive share price momentum in 2020.

Apple Inc. Price and Consensus

Apple Inc. Price and Consensus

Apple Inc. price-consensus-chart | Apple Inc. Quote

Apple’s Services Growth Momentum to Aid Top Line

App Store: Apple announced that its App Store customer spending totaled $1.4 billion between Christmas Eve and New Year’s Eve, up 16% from the same period in 2018.

Per a Sensor Tower Report, Apple’s App Store brought in $54.2 billion in sales, up 16.3% year over year compared with Alphabet GOOGL Google’s Play Store sales of $29.3 billion, up 18.1% year over year in 2019.

The robust sales figures show that customers are increasingly willing to spend on apps, and that developers are finding new ways to monetize them. Notably, since the App Store’s launch in 2008, app developers have earned more than $155 billion, with one-quarter of those earnings, roughly $39 billion, recorded in 2019, per the announcement.

Moreover, App Store customer spending on the first day of 2020 reached $386 million, a single-day record and a 20% increase year over year.

Recently, Apple also announced the top free and paid apps from its App Store. Under the ‘free’ category, YouTube topped the chart followed by Instagram, Snapchat and TikTok. Under the ‘paid’ category, the Facetune app topped the chart followed by HotSchedules and Dark Sky Weather.

iCloud Services: Apple noted that in terms of security, more than 75% of iCloud users have enabled two-factor authentication.

In 2020, Apple will introduce family sharing feature wherein up to six family members can share access to Apple services, including Apple TV+, Apple News+, Apple Arcade and an iCloud storage plan, as well as individual music, movie, TV, book and app purchases.

Apple Music: Per the announcement, Apple Music is offering over 60 million songs with world class music experts and taste makers curating thousands of playlists and daily selections in 115 countries.

In 2019, Apple Music received new time-synced lyrics feature, which has been used by 50% of listeners on iOS 13 so far.

Apple News: Apple offers a paid version of its news service called Apple News+ for $9.99 per month . Per the latest announcement, Apple News draws over 100 million monthly active users in the United States, UK, Australia and Canada.

In 2020, Apple News will provide live coverage of key moments in the U.S. presidential election in partnership with ABC News.

Apple Podcasts: Compared to Spotify’s SPOT offerings of 500,000 shows, Apple’s podcast service now offers more than 800,000 shows in 155 countries. However, none of these are exclusive to Apple.

Apple Arcade: Apple’s new gaming service offers more than 100 new and exclusive games including award-winning titles such as Sayonara Wild Hearts, Assemble with Care and Mini Motorways. In 2020, the service will add new games and expansions every month.

Notably, Mario Kart Tour emerged as the top ‘free’ game and Minecraft became the top ‘paid’ game at the App Store in 2019.

Apple Card: Last month, customers began using Apple Card’s monthly instalment services to purchase new iPhones and pay for them over 24 months with zero interest. In fourth- quarter 2019, Apple stated that major apps and retailers like Uber, Uber Eats, Walgreens, Duane Reade and T-Mobile have already joined to offer 3% daily cashback on Apple Card transactions.

Apple Pay: It allowed entry to more than 150 stadiums, ballparks, arenas and entertainment venues around the world with contactless tickets in 2019, and users could ride public transit in Shanghai, Beijing, Tokyo, Moscow, London and New York.

Moreover, Apple Pay’s monthly transaction volume growth was four times faster than PayPal PYPL in fourth-quarter.

In 2020, Apple will extend ride services to trains and buses in cities like Washington, D.C., Shenzhen, Guangzhou and Foshan. Users can also access dorms and services at additional universities across the United States through Apple Watch and iPhone.

Apple TV App: The app offers over 30 Apple TV channels in more than 100 countries. The company announced that the app will also be available on LG, Sony and VIZIO smart TVs later in 2020.

Zacks Rank

Apple currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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