News

Digital-POV: Apple's App Store Record & Q1 Warnings

Background:

Apple kicked off the New Year by announcing a new single-day spending record on the App Store, which was good news for the tech giant since the share price had taken a bashing after revealing weak sales in China.

Details and Implications:

Apple ended 2018 with record-breaking sales on the App Store, with customers spending over $1.22bn between Christmas Eve and New Year’s Eve alone. On January 1st, customers set a new record for the App Store, spending $322m on a single day – as they loaded up their shiny new Apple devices or cashed in their iTunes gift cards from the holidays.

According to the Apple Newsroom: “The App Store helped drive Services revenue to an all-time record in the holiday quarter. Apple services set new all-time records in multiple categories, including the App Store, Apple Music, Cloud Services, Apple Pay and the App Store’s search ad business”.

Within the App Store, gaming and self-care were the most popular app categories over the holidays. Fortnite, of course, was one of the most downloaded games alongside PUBG, Brawl Stars, Asphalt 9 and Monster Strike. With wellness and wellbeing trends taking over a variety of industries, it’s no surprise to see that self-care category brought Apple record revenue this holiday season. In addition to gaming and self-care, apps under the Productivity, Health and Fitness, and Education categories are already gaining traction this year as consumers start 2019 with New Year resolutions.

However, in advance of Apple’s anticipated Q1 2019 earnings results, Apple CEO Tim Cook issued a letter to his investors lowering initial projections by around $9bn and more than 7% lower than initially predicted (which went from a high of $93bn to a new projection of $84bn).The reason for a lower Q1 projection includes: “Lower than anticipated iPhone revenue, primarily in Greater China.”  

On the back of the announcement, Apple shares plunged 7% to $147 after market close on Wednesday and another 9.5% to $142.88 on Thursday. The shortfall in Apple’s revenue is largely from its flagship iPhone device as other products including Mac, Apple Watch, iPad and its Services, grew by 19%. A strong US dollar, supply constraints and economic weakness in emerging markets were a few of the other issues Apple faced this quarter.

Summary:

Smartphone numbers across the industry were down in 2018.  We can see Apple slowly shifting its strategy away from generating iPhone revenue and instead focusing on growing revenue from services like iTunes, the App Store, Apple Pay, iCloud, Apple News and its upcoming video streaming services. It’s clear that Apple’s Services sector will be important for its business and will create a much more sustainable revenue stream than hardware sales – which tend to peak at launch and then drop off as time passes. Whether Apple will be able to do anything about market reaction to lower than expected hardware sales remains to be seen but stronger Services revenues will help for sure. It’s an interesting year ahead for Apple.

Further Reading:

Apple Newsroom 1 | Apple Newsroom 2 | TechCrunch | Business Insider | CNET