It’s good to be an app developer for Apple Inc. (NASDAQ:AAPL). Last year, the earnings came to a whopping $20 billion, up 40% on a year-over-year basis. In all, there are 2.2 million apps in the App Store. Of course, AAPL stock got a nice benefit from this since the company gets a cut from each download.
The estimate is that the gross revenues were approximately $8 billion.
Granted, for a company at the scale of Apple, this may not necessarily seem like a lot. In 2016, the company posted revenues for $215.6 billion. The fact is that the main driver continues to be the iPhone franchise.
Yet, the Apple App Store is still vitally important and it should provide some fuel for growth. Consider that many of the downloads are from highly popular games, such as Pokemon Go and Super Mario Run.
If anything, as the iPhone gets more sophisticated, this category will likely see continued strong monetization. According to research from Ovum, the spending on gaming is forecasted to jump from $38.5 billion in 2016 to $71.5 billion in 2021.
But then again, the power of the App Store should go well beyond gaming. For example, one driver has been the substantial growth in streaming services, such as Netflix, Inc. (NASDAQ:NFLX).
AAPL and App Power
Keep in mind that AAPL has been working hard on building its platform. For example, it has a new language, called Swift, which allows for building sophisticated apps.
At the same time, Apple has been developing various app frameworks, such as Healthkit, Homekit, Apple Pay, Sirikit and so on. All these should allow the company to get a piece of the revenue opportunity from the digitization of key industries.
For example, APPL is already making a big play for healthcare. To this end, the company is developing a diagnostic system within Healthkit that will be tied to the Watch.
According to Apple CEO Tim Cook: “If you drive for a while and your car gets too hot, it says pull over. If you need an oil change, it says check your oil. What’s the equivalent for the body?”
Well, I think APPL wants to provide a solution. And yes, the opportunity is enormous. According to a report from Zion Market Research, the mobile health market is expected to go from $11.47 billion in 2014 to $102.4 billion by 2022. Some of the key drivers include better safety, treatments that are more effective and the ubiquity of smartphones. Actually, mHealth is likely to be a key part of helping to reduce the burgeoning healthcare costs in the U.S.
Bottom Line On AAPL Stock
Going into 2017, there are some potential catalysts for AAPL stock. First, it seems likely that Donald Trump will lower taxes on foreign capital. This means Apple will have easier access to its $215 billion hoard that is located offshore. With this, the company will be able to pull off more acquisitions as well as buyback stock and pump up the dividend.
Although, the iPhone will be the key. Unfortunately, the growth has stalled. But this could be the result of consumers anticipating a major update with the iPhone 8. Already there are indications that the device will be standout, such as with OLED (organic light emitting) screens, which will be thinner and perhaps even allow for bending. Interestingly enough, there may not even be a bezel, which will not only make the device look sleeker — one of Apple’s hallmarks — but allow more room on the screen.
Besides, AAPL stock still sports a reasonable valuation, with the forward price-to-earnings ratio of 11.5X. Hey, Microsoft Corporation (NASDAQ:MSFT) is at 19X and Oracle Corporation (NYSE:ORCL) is trading at 14X.
No doubt, Apple stock will not return to the high-growth glory years. AAPL stock is simply too massive. But for 2017, there are certainly some promising factors that should help juice things up.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is a registered investment adviser representative (you can visit his site to learn more about his financial planning services). He is also the author of various books on investing like All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
