Apple Inc. AAPL recently announced that its App Store generated record sales of more than $20 billion for developers in 2016, up almost 40% from 2015. According to The Wall Street Journal, the revenue figure was nearly $28.5 billion and the company collected almost $8.5 billion from these sales compared with roughly $6 million in 2015. Notably, Apple keeps 30% of all App Store sales.
Apple also stated that the New Year’s Day was the busiest day for the App Store with nearly $240 million in sales. During the holiday season (Dec 2016), App Store sales topped $3 billion, which is a record in the company’s history. Nintendo’s NTDOY Super Mario Run was the most downloaded app (40 million downloads in just four days since the games release) globally on Christmas and New Year’s Day.
However, Nintendo’s another super hit game Pokemon Go took the top spot as the most downloaded app in 2016, trailed by Super Mario Run. Prisma, Reigns, Procreate, Lumino City, Sweat With Kayla and djay Pro were the other most successful games in the App store. Netflix NFLX, HBO Now, Line, Tinder and MLB.com At Bat were the top subscribed apps last year. Currently, the App Store offers 2.2 million apps in total.
App Store Sales: China a Key Driver
The strong sales growth despite lower sales volume of the company’s flagship iPhone device reflects the stickiness and superior app offerings of the store. Apple stated that top-grossing markets were the U.S., China, Japan and the U.K. China reported growth of more than 90% year over year.
The Chinese market has proved tough to crack for western services like Apple, Facebook FB and Google due to strong competition from local providers and excessive censorship of the government. We note that since Apr 2016, Apple’s iBooks and iTunes Movie stores remained blocked in the country.
The App Store has also faced pressure from the Chinese government. Notably, Apple removed both the English-language and Chinese-language apps of The New York Times from its App Store in China on Dec 23 following a request by the government authorities.
Per Reuters “The New York Times pointed to a recent investigative report on government subsidies offered to Apple supplier Foxconn, also known as Hon Hai Precison Industry Co, as a possible reason for the ban.”
Although China remains one of Apple’s largest iPhone markets, the sales have slumped in recent times. In fiscal 2016, Greater China Sales declined 17% from fiscal 2015, primarily reflecting macro-economic headwinds and tough competition from low cost handset providers. In such a scenario, surge in App Store sales is significantly encouraging for Apple, in our view.
First Retail Store in Seoul
Meanwhile, the Apple-Samsung rivalry is set to heat-up in South Korea, as the iPhone maker is reportedly planning to open its first retail store in Seoul. According to WSJ, “One potential location is within a stone’s throw of Samsung’s longtime headquarters in Gangnam, where Samsung has a three-story global flagship store.”
Reuters quoted a South Korea's Yonhap News Agency report, which said that Apple’s store will be possibly located in a southern district of Seoul and construction work will likely be completed by the end of Nov 2017.
Similar to China, South Korea has proved to be a tough market to penetrate for Apple due to dominance of Samsung and LG in the country’s smartphone handset market. However, the company is now banking on its new iPhone to make headway in the Asia’s fifth largest economy.
Stock Price Movement
We note that in the past one year, Apple has underperformed the broader market. Shares of Apple have grown over 15.80% compared with the Zacks Computer Mini industry’s gain of 16.38%.
Currently, Apple carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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