The Apple (AAPL) empire may be led by its flagship product, the iPhone, but along with a host of other hardware offerings, the Services segment has grown at a rapid pace. There is also talk of a game-changing AV/VR headset and at one point even an Apple Car.
But Needham analyst Laura Martin thinks another big revenue stream is on the way, too.
“We believe AAPL is in the early stages of building a new mobile advertising platform,” said Martin, who thinks ad revenue could be a “material value driver” for the tech giant for several reasons.
First, there is the offensive element. Being the largest company in the world, Apple needs to focus on large global TAMs (total addressable markets) to continue growing. Since eMarketer expects the global digital advertising market to reach $600 billion this year, it certainly qualifies as one.
There is 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 saw their ad turnover decline after iOS replaced IDFA with ATT in 3Q21.”
It also comes down to a smart tactical move. Apple works like a ‘walled garden’ and the user data is ‘best-in-class’. Meanwhile, it also reduces the tracking and transparency data that can be accessed by other companies. This gives the company’s pricing power a boost.
Martin is not just speculating about it. There is evidence of Apple’s advertising ambitions as the company’s recent job openings imply building a new AdTech platform. Since the early months of the year, there has been a notable increase in the company’s recruiting activity for its Ad Platform unit. Apple recently posted a vacancy for “a senior manager for its DSP in its advertising platforms who will drive the design of the most privacy-focused, advanced demand-side platform possible.” In addition, Apple attended the Cannes Lions advertising festival in June. This suggests to Martin that the company is trying to “make marketers aware of its being in the advertising business”.
So, down to the last detail, what does all this mean for investors? Martin reiterated a buy recommendation for Apple stock, backed by a $170 price target, suggesting stocks are fairly valued right now. (To view Martin’s track record, click here)
The Street’s average target is slightly higher; at $180.11, the figure leaves room for a 9% increase from current levels. All told, based on 22 purchases, 6 held and 1 sale, the stock claims an average buying consensus rating. (See Apple stock forecast at TipRanks)
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Disclaimer: The opinions expressed in this article are those of the featured analyst only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.