Apple’s App Store: Half A Trillion Reasons To Care About WWDC
One of Apple’s recent press releases may have gone unnoticed by many. But the news provided a glimpse into the scale of the company’s App Store and its impact on Apple’s P&L.
According to a study conducted by independent economists at Analysis Group, Apple’s app ecosystem facilitated $519 billion in billings and sales in 2019. Yes, that is over half a trillion dollars in one year. To make sense of this number, a bit of perspective and further data-digging is needed.
How the App Store makes money
Let’s start with a quick review of the business model. Apple makes money with its App Store by collecting commissions on certain transactions.
Think of Candy Crush Saga, a gaming app that is available for free. The developer earns its revenues through in-app sales, and Apple takes a 30% cut of that total. The Cupertino company also gobbles 30% of sales from paid apps (e.g. Heads Up! and Dark Sky Weather) and first-year subscription revenues (e.g. Bumble and Hulu). Apple does not make money from advertising or physical goods and services.
With that in mind, take a look at the following chart. Most of the $519 billion in revenues created through the App Store last year came from products that did not generate commission to Apple. But most of digital goods and services sold did, and quite a bit of it.
Given information provided by Apple earlier this year, I estimate that the App Store accounted for more than one-third of Apple’s total service sales in 2019.
Timely information as WWDC approaches
There is one key message to take away from all of this. As Apple’s WWDC developers conference lurks around the corner, the company’s recent press release underscores the importance of the app ecosystem. I believe that the App Store will remain a crucial piece of the puzzle within a services segment that is one of the most important for the Cupertino company.
For this reason, I think that investors should pay attention to the upcoming operating system updates and ask what they might mean for the evolution of the App Store. Apple’s future financial results and stock performance will probably depend heavily on it.
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(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)