Apple Inc. could turn advertising into its next $20 billion business as the company ramps up its offerings and clamps down on ad targeting by third parties.
That’s according to estimates from Evercore ISI analyst Amit Daryanani, who pegged Apple’s AAPL,
Advertising represents a high-margin revenue stream for Apple. By 2025, ad revenue could constitute about 17% of Apple’s services revenue and about 5% of total revenue, but 9% of earnings per share, by Daryanani’s math.
Daryanani rates Apple’s stock outperform, with a $180 price target. The stock slipped 0.8% in midday trading Wednesday. It has rallied 16.9% over the past three months, while the Dow Jones Industrial Average DJIA,
The smartphone giant’s current advertising revenue mainly comes from App Store search, according to Daryanani, and he sees opportunities for the company to turn the App Store into more of a “content discovery” vehicle versus a “content delivery” one. He pointed to the company’s launch of search ads in China earlier this year and the potential for increasing ad loads as ways that Apple can increase its advertising revenue organically.
There are also new opportunities that Apple could tap, modeled off of successful endeavors by other companies in the digital ad world. Roku Inc. ROKU,
On the whole, Google looks poised to generate more than $200 billion in advertising revenue this year, he continued, and while Apple is unlikely to “compete with Google’s scale anytime soon,” the size of Google’s ad business gives him more confidence in his $20 billion estimate for Apple come 2025. He also noted that Amazon.com Inc. AMZN,
As Apple grows its own ad business, the company has taken steps to shake up the broader digital ad space, most notably through its App Tracking Transparency efforts. This makes it so third parties need to obtain consumer permission before tracking their broader online activities. Many users appear to be opting out of having their activity monitored in this way, according to early estimates.
Apple positions App Tracking Transparency as a privacy-focused effort, and while Daryanani acknowledges that it “certainly does help in that arena,” he also said that there could be a more “Machiavellian” or “nuanced” way to view these efforts: By making it more difficult for third-party apps to target users on iOS devices, those companies may be tempted to spend more money on Apple’s own advertising products.
He pointed to recent comments from Zynga Inc. ZNGA,