5 Facts Apple Investors Should Know About the App Store

By Markets Fool.com


Image source: Apple.

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At the beginning of 2016, Apple (NASDAQ: AAPL) CEO Tim Cook was faced with the fact that iPhone sales would decline for the first time in history that year. To shift Wall Street's focus away from the impending decline in unit sales he aptly pointed out, "A growing portion of our revenue is directly driven by our existing install base. Because our customers are very satisfied and engaged, they spend a lot of time on their devices and purchase apps, content, and other services."

Indeed, while iPhone sales declined 12% in fiscal 2016, Apple's services continued climbing higher for the year. A big part of that growth is the continued increase in sales through the App Store. Earlier this month, Apple provided a roundup of App Store highlights from 2016. Here are the five most important facts for Apple investors to know.

App developers earned $20 billion last year

Apple paid out $20 billion to iOS developers in 2016. That's up 40% year over year, according to Apple.

The $20 billion paid to developers implies Apple kept over $8 billion in revenue for itself using its standard 30/70 split. While some subscription services received a higher revenue share, they still represent a relatively small percentage of App Store revenue. Last year, Apple generated an estimated $6 billion in revenue from the App Store.

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Apple's user base is significantly more willing to pay for apps and services than Google's. The Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) subsidiary consistently sees little more than half the revenue from its Play Store as the App Store, according to App Annie. That makes Apple's still-growing install base extremely valuable even if iPhone unit sales declined.

2.2 million apps available

The 2.2 million apps available for download in the App Store represent a 20% increase year over year. Additionally, the most recent update is indicative that developers are steadily adding apps to the App Store. Apple announced that it reached 2 million apps in June at its WWDC presentation -- just about the halfway point of the year.

Several new apps made a big splash in 2016, including Pokemon Go and Super Mario Run. Just as importantly, if not more so, older games such as Monster Strike and Fantasy Westward were some of the top-grossing apps in the App Store.

While Apple is adding a good number of new apps, sales are growing much faster. That's a good sign of an expanding user base and a growing willingness to pay for apps.

$240 million in sales on New Year's Day

Jan. 1 was once again Apple's biggest sales day for the App Store. Last year, it set a new record on New Year's Day with $144 million in sales. This year, sales rocketed 67% year over year to $240 million.

That growth is a strong indicator that Apple may continue to see robust growth from the App Store in 2017.

$2.7 billion in subscription revenue

Of the $28 billion or so in App Store sales, nearly 10% came from subscriptions. This summer, Apple altered its revenue share agreement with subscription services, dropping from a 30/70 split to a 15/85 split after one year. This gave an incentive to more subscription services to start offering subscriptions through the App Store.

The growth of the Apple TV App Store also likely led to an increase in subscription sales for Apple. 2016 represented the first full year Apple opened the platform to all developers.

China grew 90%

App sales in China grew 90% year over year in 2016. China surpassed the U.S. as the largest download market for iOS apps in the first quarter, according to App Annie. However, it still trails the U.S. and Japan in terms of App Store revenue for now.

While China represents one of Apple's largest markets, sales in the region declined more than its other regions in 2016. The iPhone 6 was extremely popular in the country during fiscal 2015, leading to a decline in sales the next year. But App Store sales continue to climb faster than Apple's average. That's indicative of the large opportunity of the relatively young user base in the region.

Overall, Apple's App Store had another great year of growth, and 2017 looks to be off to a strong start.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.