Mobile applications generate billions in annual revenue for both Apple (NASDAQ: AAPL) and Alphabet. The amount of time people spend using their smartphones has risen at a significant pace over the years. According to an eMarketer report, the average U.S. adult is on their smartphone for nearly four hours a day in 2020, up from just two-and-a-half hours in 2014.
About 90% of that time is spent on mobile apps, a trend that has fueled the growth of mobile app purchases as well. Consumer spending in the U.S. for every active iPhone on the App Store rose to $100 per year in 2019, according to a Sensor Tower report. This includes the amount spent on in-app purchases as well as premium applications (but does not include ride-sharing or e-commerce apps). That $100 figure has more than doubled from just $47 in 2016.
Mobile games take the cake
As expected, the report states that mobile games accounted for 54% of total app spending last year, or $53.80 per year. That is up 22% from 2018 and yet another year of double-digit growth for the category.
However, the fastest-growing segment of the App Store was photo and video. The average spending in this category, rose 75% year over year to $6.30 in 2019. The lifestyle category, which includes dating apps, also enjoyed rapid growth as average spending per active iPhone jumped 46% to $5.70.
The App Store will be available in over 175 countries by April 2020. It attracts over 500 million visitors each week, and Apple has paid developers a staggering $155 billion in earnings to date.
Assuming Apple has charged developers a flat 30% throughout the life of the App Store, this part of the company's services segment has generated around $220 billion in gross revenue, or $65 billion in net revenue for the technology giant.
In 2019, another Sensor Tower report estimated total App Store sales amounted to $54.2 billion, which means Apple collected about $16 billion in revenue from those app sales last year. Despite having a considerably smaller base of smartphone users compared to the rival Android operating system, Apple continues to lead mobile app purchases by a significant margin. The Google Play Store generated approximately $29.3 billion in gross mobile app sales last year.
Why App Store revenue will continue to rise in 2020
App Store revenue can be expected to grow even in 2020, a time when the coronavirus pandemic and economic uncertainty are likely to hurt many other companies. While it's likely sales of the iPhone, iPad, Apple Watch, and MacBook decline in the fiscal second and third quarters, strong sales in the App Store and the company's other subscription services such as Apple Arcade and Apple TV+ should offset some of the headwinds.
Many people around the world are staying at home with offices and schools temporarily closed. This lockdown situation should continue to boost mobile app spending in the gaming, entertainment, and video categories. We've already seen several entertainment and gaming companies, including Take-Two Interactive, Activision Blizzard, and Netflix, outperform this bear market thanks to the surge in demand for their products.
But people are actually spending more time on their smartphones compared to traditional entertainment mediums such as television. Another Sensor Tower report published on April 1 estimates App Store spending will rise 21% in 2020, despite the pandemic, and that double-digit pace is expected to last through 2024.
The App Store's high engagement metrics, coupled with the broad shift in smartphone consumption and expected growth in high-growth app categories like mobile gaming will fuel results at Apple in 2020 and beyond.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Apple, Netflix, and Take-Two Interactive. The Motley Fool has a disclosure policy.
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