The Apple (AAPL) empire might be spearheaded by its flagship product, the iPhone, but along with plenty of other hardware offerings, its Services segment has been growing at a fast pace. There’s also talk of a “game changing” AV/VR headset and even of an Apple Car at some point.
But Needham analyst Laura Martin thinks there’s also the prospect of another big revenue stream.
“We believe AAPL is in the early stages of building a new mobile advertising platform,” says Martin, who thinks ad revenue could be a “material upside value driver” for the tech giant for several reasons.
For one, there’s the offensive element. Apple being the largest company in the world, to keep on growing it must focus on big global TAMs (total addressable markets). As eMarketer expects the global digital advertising market to reach $600 billion this year, it certainly qualifies as one.
There’s also a defensive element, as explained by Martin: “Creating a privacy-first ad platform would solve a problem for AAPL's ad-driven apps which have seen their ad revs fall after iOS replaced IDFA with ATT in 3Q21.”
It also amounts to a clever tactical move. Apple operates as a “Walled Garden” and its user data is “best-in-class.” All the while, it is also reducing the tracking and transparency data accessible to other companies. This gives the company’s “pricing power” a boost.
Martin is not just speculating on the matter. There’s evidence of Apple's advertising ambitions, as the company's recent job postings imply a new AdTech platform is being built. Since the early months of the year, there has been a notable increase in the company’s recruiting activity for its Ad Platform unit. Just recently, Apple put up a job opening for "a senior manager for its DSP in its ads platforms business who will drive the design of the most privacy-forward, sophisticated demand side platform possible." Moreover, Apple made its presence felt during June’s Cannes Lions advertising festival. This suggests to Martin, the company is trying to “drive awareness among marketers that it is in the advertising business.”
So, down to the nitty-gritty, what does it all mean for investors? Martin reiterated a Buy rating on Apple shares, backed by a $170 price target, suggesting shares are fairly valued right now. (To watch Martin’s track record, click here)
The Street’s average target is a touch higher; at $180.11, the figure leaves room for a 9% upside from current levels. All told, based on 22 Buys, 6 Holds and 1 Sell, the stock claims a Moderate Buy consensus rating. (See Apple stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Apple's (AAPL) latest quarter was solid, showing evidence that it's managing well through supply issues. Hardware and services demand remains robust, and with new cutting-edge products (think a VR or AR headset) on the horizon, the lofty (27.4x trailing earnings) price tag seems more than warranted. Looking past known catalysts, Apple seems to be stealthily inching its way into new markets, most notably advertisements.
Such an advertising push could be a significant source of long-term growth for the legendary company that's keeping its foot on the gas. I am staying bullish on AAPL stock.
Undoubtedly, Apple has a hand in many pies, and it's done a great job of jumping into parallel markets.
CEO Tim Cook is a legendary manager responsible for incredible services growth and the considerable multiple expansion enjoyed by the stock in recent years. Looking ahead, Cook likely sees opportunity in ads, a market where Apple's FAANG rivals have excelled. Apple looks like a top contender to take meaningful share away from its peers as it continues to leverage the power of its network of loyal customers.
As a result of the company's dominance, shares of Apple have been incredibly resilient through this broader market sell-off. The stock has led the way for other FAANG companies and is now up more than 26% off its June bottom while down less than 10% from its all-time high of around $180 per share.
Apple isn't Taking Shots at Meta Platforms Just for FunApple's disruption of Meta's ad business put some power back in the hands of its users by giving them the option of preventing cross-site ad tracking. However, it wasn't just a jab to protect the privacy of its users. Though Apple is viewed as a good guy in the tech space, given its privacy focus, the firm may have the opportunity to squeeze firms out of the ad markets to set up its own push. Undoubtedly, Apple will do ads ethically, and this privacy focus could set a new standard for the industry.
Apple's privacy-focused iOS updates pressured the top and bottom lines of social-media firms like Meta Platforms (META). Indeed, the single move wiped out billions off Meta's market cap. To date, the firm doesn't yet have an effective solution, though Meta is keen on outdoing Apple in VR en route to the metaverse.
Last week, Apple shed light on its App Store Search Ads program. Reportedly, the company has been hiring quite a few high-level employees on the ad side of its business. Indeed, this could indicate the beginning of an ad push that could challenge the likes of Meta Platforms and even Alphabet (GOOG)(GOOGL).
The ad market is ripe for disruption. With one of the best reputations in the big-tech scene, I think Apple's ad business could be a force to be reckoned with. Toni Sacconaghi, an analyst at Bernstein, sees Apple's ad business hitting up to $10 billion in revenue by Fiscal Year 2023 or 2024.
Looking further out, I think the ad business could become even more influential, especially if Apple dominates the metaverse in the latter part of the decade.
Selling Ads in the Metaverse Could Prove LucrativeThe digital worlds of tomorrow could see advertisements augmented over the real world. This is similar to how various ads are displayed to television viewers during live sports broadcasts. Many big-tech firms are making sizeable investments to take command of the metaverses.
Currently, Meta is a leader with its line of Oculus headsets. Though there are rivals, it's really hard to match the dominance of Oculus' new headsets and its $10 billion commitment to building out its version of the metaverse.
That said, Meta's metaverse won't be the only one, and it may not even be the most popular one, as I suggested in a prior piece covering Meta's metaverse pivot. As rivals aim for the metaverse, Meta faces a real fight, given how much of the ad market could be at stake.
Apple has been rumored to be working on its own mixed-reality headset for quite some time. Its library of augmented reality apps on iOS is already quite sizeable. With Apple rumored to lift the curtain on its much-anticipated headset as soon as the first half of 2023, we could see a shift of the tides in Apple's favor.
Whether or not augmented or virtual reality becomes the new go-to medium for ads, the winners (yes, there can be more than one, as Meta doesn't own the metaverse as we know it) of the metaverse race may also wind up as the largest share-takers within the evolving ad market.
Wall Street's Take on AAPLTurning to Wall Street, AAPL has a Moderate Buy consensus rating based on 22 Buys, six Holds, and one Sell assigned in the past three months. The average AAPL price target of $180.11 implies 9.4% upside potential. Analyst price targets range from a low of $136.00 per share to a high of $210.00 per share.
Takeaway - Apple is a Growing Threat to Advertising Industry CompetitorsApple is innovating at a rapid pace. There's a lot of exciting new stuff slated to come out of the pipeline over the next year! As the firm looks to make a huge push into ads, I think Meta and other rivals could have a growing problem on their hands.
Apple's network is unmatched, and with so much transparency surrounding user privacy, I'd be unsurprised if a majority of Apple users give the company the green light to serve them up personalized ads.