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Why Apple’s App Store Revenue Growth Is Critical

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Apr. 19 2018, Published 10:09 a.m. ET

iPhone users spent 23% more on apps in 2017

Apple (AAPL) wants to boost its revenue from other segments like its Services segment, to reduce its dependence on iPhone sales, which made up over 69% of the company’s revenue in fiscal 1Q18 (quarter ended December 2017). A good chunk of the company’s revenue from the Services segment, which generated revenue of $30 billion in fiscal 2017, comes from Apple’s App Store, which is seeing robust growth.

According to a recent report by SensorTower, iPhone users in the US spent 23% more on in-app purchases and premium apps last year, or $58 per active user, compared to the previous year.

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Apple’s services growth could be critical for the company

Gaming was by far the biggest driver of App Store revenue. SensorTower said that out of the $58 on average spent by an active user, $36 came from gaming apps in 2017, which was 13% higher than in the previous year.

However, the entertainment apps, which were the second biggest drivers of App Store revenue, grew 57% to $4.4 per active user in 2017, which was mostly driven by aggressive cord-cutting. These apps include the app versions of streaming services like Netflix (NFLX), Hulu, and HBO NOW. Apple takes a 30% cut from in-app purchases made from such apps.

Apple’s growth in its app store revenue and in the broader Services segment, which includes Spotify-rival Apple Music, Apple Pay, and iCloud, could be an important driver of the company’s growth going forward, especially in light of Apple’s slowing iPhone shipments.

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