Apple will soon be blitzing your iPhone with ads, because it's profitable
So, Apple’s Q2 19 financials are in, and what’s weird is that the less Apple delivers, the happier investors seem to be. Perhaps this is the calm after the storm, or maybe it’s the calm before the storm, but either way there seems to be a tranquillity in the air, with Apple up around 5 percent in after-hours trading.
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But let’s look beyond the numbers for a moment and instead do some quick analysis of what was said during the earnings call that followed the release of the financials.
The first thing that stood out to me is that both CEO Tim Cook and CFO Luca Maestri mentioned Apple’s App Store search ad business in their opening prepared statements.
“In fact, we had our best quarter ever for the App Store, Apple Music cloud services and our App Store search ad business and we set new March quarter revenue records for AppleCare and Apple Pay.”
“We generated double-digit revenue growth across the App Store, Apple Music, cloud services, AppleCare, Apple Pay and our App Store search ad business.”
Later, during the Q&A session, Cook was asked to expand on whether this part of Apple’s business was “reaching a point where it’s become material and maybe moving the needle for overall services revenue.”
Cook’s response was very telling.
“It’s growing very, very fast, Mike [Mike Olsen, the Piper Jaffray analyst who asked the question]. I think it was up around 70 percent over the previous year. We’re expanding into new geographies as well, and we still have more geographies out there that we think can move the dial further. So, it is a… it’s definitely a business that is big and getting bigger.”
Expect more ads in the App Store in future. You know, those ads that you see for some Yu-Gi-Oh! game at the top of the search results when you specified Pokémon GO.
And it makes sense. Apple’s iOS ecosystem is massive, up to 1.4 billion active devices. Sure, iPhone sales are slowing, and this is having an effect on the company’s bottom line, but Apple has a massive locked-down hardware ecosystem that it can leverage.
And it is getting ready to do just that.