When compared to its megacap peers, Apple’s (AAPL) advertising business is relatively small. That said, over the next 5 years, Evercore’s Amit Daryanani expects it will probably become “one of the main engines for growth.”
“Advertising is a great growth opportunity for Apple and their tremendous install base gives them a competitive advantage that they have not effectively exploited in the past,” the analyst said. “Recent actions indicate this is set to change as Apple looks to capture its fair share of a $1T market ($600B market if we look at just online advertising).”
Since the roll out of Apple’s ATT (app tracking transparency) in April last year, each quarter has brought with it new records for advertising revenue and Daryanani believes the high growth rate can be sustained so that advertising will generate revenue of $20 billion by FY26 (currently at around ~$3 billion). However, this would still be lower than the ~$30 billion in advertising revenue Amazon generates and far beneath the $200 billion delivered by Google.
At present, most of Apple’s advertising revenue comes from the App Store ads, but Daryanani thinks Apple can “expand” advertising across its platform in several ways. With Google raking in billions from advertising on Google Maps, the logical next step would be to add ads to Maps. And looking further ahead, Daryanani sees “potential” for Apple to pursue Google’s bread and butter - the search market. That might be doubly appealing should the regulators deem the large payment Google makes to Apple for being its default search option as “anti-competitive.”
The “ultimate potential,” says Daryanani, revolves around Apple turning its AppStore from a “content delivery” mechanism to a “content discovery” one.
“Net/net,” the analyst wrapped up, “Advertising presents a great opportunity for Apple to better monetize its 1B+ install base at a high margin.”
All in all, Daryanani maintains an Outperform (i.e., Buy) rating along with a $210 price target. Should the figure be met, investors will be sitting on returns of ~41%. (To watch Daryanani’s track record, click here)
Most analysts back Daryanani’s stance; based on 20 Buys vs. 6 Holds, the consensus view is that the tech giant is a Strong Buy. Going by the $189.4 average target, the shares are anticipated to appreciate ~27% in the year ahead. (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.