In Apple’s (AAPL) most recent quarter revenues rose by 70% year over year and earnings per share rose by 75%. Apple sold 16.24 million iPhones and 7.33 million iPads during the 4th quarter but the real story lies not in the devices sold but in the App Store itself.
At the end of the 3rd Quarter of 2009, the App Store had seen 2 billion downloads. In January 2010, the number of downloads surpassed 3 billion and just one year later on January 22, 2011, the number more than tripled to 10 billion downloads.
During the first quarter of 2011 Apple opened a Mac App Store to complement the App Store, which has more than 300,000 paid and free apps. While the Mac App Store only has maybe 1% of the regular App Store there is a significant potential for cross-selling with iPhone/iPad/iPod users obtaining similar apps for their laptop and desktop computers.
Gartner is estimating that worldwide mobile application downloads will soar to 17.7 billion downloads in 2011, up 117% from 8.2 billion downloads in 2010.
Gartner is also forecasting that when combining application and advertising revenues mobile application store revenues will surpass $15 billion in 2011.
It is estimated that each iOS user on average downloads slightly more than 60 apps per device, far in excess of users with Android on their phones.
Given the recent bump in iPhone sales coming from the Verizon (VZ) launch and the addition of App Store expansion to Mac products, the amount of apps downloaded through the App Stores by Apple users will significantly increase going forward.
While there has been a lot of press in the last few weeks about the release of new subscription rules surrounding the App Store, investors need to remember that Apple has always been about the user experience. Companies that are used to harvesting and monetizing their user data for sale afterwards found their efforts stymied in that Apple retains the data, which is causing media companies much consternation.
The latest change to the subscription system does allow for user data to be passed back to the publisher but only if the user gives approval and customers are given a clear choice. This puts the power over consumer data in the hands of the consumer rather than the publisher and media companies will have to adapt to the new digital world.
Those who complain that different delivery models for newspapers will not fit Apple’s one size fits all policy should realize that newspapers and magazines have been a dying business for the last 20 years and newspaper and magazine subscriptions are in decline.
The Internet, Kindle, and iPad have forever changed how news and content from publishing and media companies will be delivered to consumers. Rupert Murdoch realized this when he launched The Daily.
In addition, Apple also looks ready to make a major product launch this week with new additions to the Macbook line as store managers have been told to expect a special delivery.
While the bears are pointing to lower than expected sales at two locations, Verizon stores in selected rural areas saw strong demand as people who could not get to an Apple store or do not have quality AT&T (T) service had their first opportunity to purchase an iPhone.
People look at the iPad and iPhone as drivers for Apple’s current and future success but they overlook the real driver for these devices, content, which the App Store provides in droves. With more than 60 app downloads on average for each Apple device the App Stores are setting themselves up to be a solid driver of future earnings and profits.
Investors would be wise to give Apple a look on its recent pullback in the market.
Disclosure: I am long AAPL.
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