Apple Stock Isn’t Dead Yet – Not With This Catalyst (AAPL)

Last year wasn’t a particularly fun one for Apple (AAPL) shareholders. Despite the launch of the well-received smartwatch and record-breaking sales of the iPhone 6s, Apple stock ended the year down 5%. AAPL shares aren’t exactly getting 2016 started on a high note either, having fallen another 4% from last year’s closing price.

Apple Stock Isn't Dead Yet - Not With This CatalystExplanations for the weakness are plentiful, but all of them more or less point to the possibility that iPhone mania is played out as the smartphone market saturates and demand for iPhones wanes [insert gasp here].

While it was a reality everyone knew Apple was going to face sooner or later, die-hard fans and followers of AAPL stock should know the company still has a couple of aces up its sleeve.

Namely, its App Store — already comprising a large chunk of its revenue — could be on the verge of becoming one of the centerpieces on its revenue table.

The App Store Is How Big?

It’s not a level of detail the company divulges often to owners of Apple stock, but on Wednesday morning the company reported its App Store generated $1.1 billion worth of revenue during the recently ended holiday season (presumably Thanksgiving through New Year’s Day).

New Year’s Day itself was the biggest single-day ever for the App Store, generating $144 million worth of revenue, suggesting iDevices and iTunes gift cards were commonly given gifts during December.

For perspective, Apple has generated $234 billion in revenue over the past four reported quarters, meaning the App Store accounts for about 8% of the company’s total business.

Whether that’s a lot or a little is largely a matter of perspective, but from a business-growth standpoint, large or small is irrelevant. A capitalistic point of view sees the brewing smartphone headwind on the horizon and cross references that with other information about the iPhone to determine whatever the future holds, it’s going to include relatively more apps as a source of revenue.

Current App Usage Only Scratches the Surface

Given the zeal for iPhones and iPads and the stated reasons people buy them — access to thousands and thousands of apps — one would think owners of Apple products would constantly be tapping on a cornucopia of icons and consistently adding new ones as they became available. One would be wrong, however.

Care to guess how more than 80% of the time spent on a smartphone is used? On average, only four apps. All other apps are active less than 20% of the time. And just for a little more color: The average smartphone user’s most-used app accounts for more than 40% of the device’s usage.

Despite access to new and old apps, most smartphone users rarely download new apps once the initial ones are downloaded after new device setup.

On average, 65% of smartphone owners don’t download any apps in any given month, while 17% of smartphone users install two or fewer apps per month. Only 11% of smartphone owners download four or more apps per month.

It begs the question: If consumers love their smartphones because of access to a plethora of apps, why do they use so few of them?

Since the App Store is a proven source of at least some revenue — even though app-usage is limited for most smartphone owners — doesn’t it stand to reason that this is a venue worthy of attention as the market for smartphones reaches saturation?

Yes. And Apple has already seen the writing on the wall.

As of December, Phil Schiller was promoted to the position of Sr. VP of Worldwide Marketing and specifically charged with making the App Store bigger and better. That promotion follows November’s change in the way the App Store ranks and recommends new apps, moving from a download-based system to a merit-based one.

They’re small changes, but they’re telling changes. More are apt to follow, as the company has tangibly gotten serious about the role the App Store could play in the future.

Bottom Line for Apple Stock

The likelihood of a revamped App Store beefing up the value of Apple stock anytime soon is thin. Think longer-term. The smartphone headwind is only going to get worse, and Apple is wisely tapping into its related strengths — and tapping into a pretty loyal user base of iPhone owners.

Realistically, it could take a couple more iterations of the iPhone for market saturation to become an undeniable issue. With the iPhone 7 rumored to be just around the corner, that issue could rear its head sometime in 2017.

If Apple as a company is going to keep thriving, look for measurable improvement in its App Store business, and improved usage metrics by smartphone owners.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

More From InvestorPlace

Article printed from InvestorPlace Media,

©2023 InvestorPlace Media, LLC