Apple Gets into Advertising: Why Investors Should be Excited
August 17, 2022
The world’s premium smartphone device manufacturer is Apple Inc (NASDAQ: AAPL).
According to a recent news story in Bloomberg, the iPhone giant is looking to significantly ramp up its advertising business.
I believe investors should be more excited than they seem to be about this (currently) small part of Apple’s business.
The report said that Apple is exploring including advertising in its apps, such as Apple Maps, Apple TV+, Apple Books and more.
Currently, Apple has incorporated advertising into its News app, Stocks app and App Store.
According to an announcement in March, Apple will also incorporate advertising into Apple TV+ for its Friday Night Baseball deal.
Advertising is a small part of Apple’s business
Apple has attempted to push into advertising for a long time now. While it collected just over US$1 billion in ad revenue back in 2020, it has now grown to a US$4 billion revenue business for the tech giant.
However, this only contributed a marginal piece of Apple’s total revenue of US$365.8 billion in FY2021.
Apple’s ad chief, Todd Teresi, aims to increase the revenue to double-digits from its current US$4 billion level.
This means that Apple needs to triple its effort. Even if that materialises, it would still contribute less than 3% of the Group’s total revenue.
Apple is also lagging behind in the advertising business.
For example, Google’s parent company, Alphabet Inc (NASDAQ: GOOG), which is the market leader in the advertising business, had a revenue of US$178 billion from advertising.
Meta Platforms Inc (NASDAQ: META) saw Facebook’s advertising revenue come in at US$115 billion while TikTok’s owner, ByteDance, recorded advertising revenue of around US$44 billion.
Apple could become an advertising giant
While Apple’s advertising business is only a small part of the overall company, there are a lot of immediate opportunities for the iPhone maker to grow its advertising business.
The long-term potential for Apple is also huge in the advertising business.
The mobile advertising market alone stood at around US$288 billion in 2021 and could surpass the US$400 billion level by 2024.
With Apple’s installed base of 1 billion iPhone users, the company is in a good position to take advantage of the potential here.
Last year, Apple released an update for iPhones with a new popup that asked users if they wanted to allow apps on their phones to target the users for ads.
The privacy feature, known as App Tracking Transparency (ATT), has upended the behind-the-scenes mechanics of many mobile ads.
So, it will be interesting to see how the tech giant navigates between making money from advertising and the privacy of its iPhone users.
At a customer level, there is reputation risk if the user experience is affected by the inclusion of these new advertising channels.
According to the news report, Apple is already testing adding sponsored results to search results in its Maps app, similar to the App Store Search Ads programme.
Not Apple’s first attempt at advertising
Apple first entered the ads business under Steve Jobs with the announcement of iAd in 2010, which would see developers place Apple banner ads, instead of offerings from GoogleAds and others.
In the end, iAd was mostly a failure and was discontinued the following year.
This would be the second attempt by the tech giant and if it could get its act right, Alphabet and Meta will be looking at a fierce new competitor in the ad space.
It is still too early to determine if the new ad business will be a success.
But it does offer a quick win for Apple as compared to its other new exciting ventures, such as the autonomous self-driving vehicle or the Metaverse.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.