Happy Birthday iTunes Store

iTunes (including software and services) revenues in Q1 topped $4 billion and were 30% higher than (re-stated) 2012 Q1 revenues. Accompanying this revenue figure were additional data points from the company:

  • Cumulative app downloads have surpassed 45 billion
  • Payments to developers reached a cumulative total of $9 billion
  • Payments to developers were $4.5 billion in most recent four quarters
  • Now paying $1 billion to developers every quarter
  • 800 apps are downloaded every second
  • iOS app revenues doubled since year-ago quarter
  • App Store accounted for 74% of all app sales in the quarter (citing Canalys)
  • App stores reach customers in 155 countries (850k Apps, 350k iPad apps)
  • iTunes music downloads are available in 119 countries (35 million songs)
  • Movies are sold in 109 countries (60k titles)
  • iBookstore is available in 155 countries (1.75 million titles)

This data allows for a few inferences:

  • Nearly 70 million apps are downloaded every day
  • The average revenue per game is about 23 cents
  • Gross app revenues are about $16 million per day (of which 11 million is paid to developers.)
  • Gross iTunes revenues were $5.4 billion last quarter of which I estimate:
  •  …App revenues were $1.6 billion
  •  …Music revenues were $2.2 billion
  •  …Video revenues were $287 million
  •  …Book revenues were $312 million
  •  …Apple’s software generated $1 billion
  • In addition, I estimate that Services generated $100 million

Note that there is a difference between the amounts transacted through the store and what the company reports. The difference is shown in the following graph

Screen Shot 2013-04-29 at 4-29-1.02.50 PM

To mark it’s 10th year, I wrote a segment for Billboard Magazine describing what iTunes has become. I suppose it’s easy to become numb to these numbers, but there is perhaps one way to look at iTunes that is still compelling:

Selling $20 billion a year would put iTunes in the top 20 US retailers and top 50 Global retailers.

Screen Shot 2013-04-29 at 4-29-1.36.41 PM

Not bad for a 10 year old.

  • Chaka10

    Horace, Apple management clearly continue to go out of their way to mention this product segment. This board has seen some debate on whether it’s a profit center, or just device value-add. Seems like an increasingly important question — which is it? If it’s the latter, then it doesn’t help margins when that business grows.

    • Apple has only one P/L.

      • Chaka10

        Yes, of course, but financial analysis, including on this board, informatively look separately at the profitability of their different product segments (iPhone more profitable than iPad, etc, etc.). Apple has introduced, and focused shareholders on the new iTunes product segment. Isn’t it an appropriate question to ask what are the margins on this segment, especially given the concerns regarding margin trends?

    • Walt French

      Why does it matter what bucket it goes in, when it comes time to calculate margins? As long as it’s broken out as it is, the color of the dollar bills won’t change the margins.

      Clearly, Wall Street is worried about margins as a sign that competitors have caught up with Apple’s technology, and Apple will be forced to cut margins to keep share. Whether or not you subscribe to that theory, at current pricing iTunes’ revenues per se play a minor role.

      • Chaka10

        Hmmm, maybe I’m over-thinking it, but it seems obvious that it’s important to know or at least have a sense of the profit margins on the portion of Apple business (from a product line perspective) that is growing the second fastest (behind iPad).

      • Walt French

        I think you need to work out the causality. Sure, if hardware sales slow and iTunes grows steadily, margins will compress. But the real issue in that scenario is that iTunes’ revenues would be a lagging indicator of hardware success—and yet, ONLY an indicator.

        The Board is presumably concerned with actual efforts Apple undertakes to produce attractive products at a price that generates both profits and large volumes.

        I can’t figure out what management or the Board would do differently, depending on what label they stick on iTunes. Maybe you could expand on your thought. Looks like cart-before-the-horse to me.

  • Sacto_Joe

    The difference between “gross” and “contributing” revenue only impacts books and apps. Is that an indication that this might somehow be deferred revenue, such as used to happen with iPhone sales? If so, then might that plus other deferred revenue items like prepaid taxes go a long way towards explaining what only appears to be shrinking margins?

    • agencymodel

      I believe that’s the difference between the Agency model and the non-agency model. Apple either counts 100% of the sale price and then pays out the 70%, or only counts 30% to begin with. This differs for different media types.

    • No, the revenue is not deferred. It’s payments to developers that are not booked as revenues. The effect is on the top line and hence the margin and not on the bottom line. If the “missing” revenues were included, margins would decline.

      • Sacto_Joe

        Got it! Thanks for the clarification!

  • Services is much more than $100m, most likely over $500m. Back it out of the restated figures for iTunes/SW/Services minus reported iTunes only revenue (only disclosed in analysts conference calls) and minus the old SW&S* line.

    e.g. for F2012Q4:
    iTunes/Software/Services: $3.496b
    minus iTunes alone: about $2.096b (“almost $2.1b” see cc transcript)
    minus old SW&S* line: $892m
    Implied iDevice services revenue: about $508m (excludes Mac services)

    * The old SW&S includes only Mac Services since iDevice services were reported within the iTunes (iPod services), iPhone, and iPad total revenue.

    Cross check with the differences between originally reported iPhone/iPad and the restated lines (e.g. for F2012Q4), which would yield the combined iDevice accessories and services, subtract the derived services figure, and add this (accessories) to original Peripherals & Other Hardware to validate against the new Accessories line:

    iPod services+accessories:
    Original iTunes + iPod accessories & services ($2.296b)
    minus iTunes alone (~$2.096)
    ~= $200m

    iPhone services+accessories:
    Original iPhone total ($17.125b)
    minus restated iPhone ($16.645b)
    = $480m

    iPad services+accessories:
    Original iPad total ($7.510b)
    minus restated iPad ($7.133b)
    = $377m

    Total iDevice accessories+services ~= $1.057b
    Subtract iDevice services ($508m derived above)
    iDevice accessories ~= $549m

    Add original Peripherals and Other Hardware ($706m)
    Accessories + Peripherals & OH ~= $1.255b

    Which coincides with the newly restated Accessories revenue line.

    • This upside in services most likely would come at the expense of your $1b software estimate.

    • I need to check this more closely. I saw the transcript but was not sure what was iTunes revenues referring to. Could it be a transcription error? Oppenheimer also said they had a $16 billion run rate on iTunes which does not make sense relative to only $2b/q.

      • No error. Check the transcripts going back to at least 2010 (if memory serves well).

        The $16b run rate probably refers to total bookings through iTunes (the distinction made in your charts here).

      • Ok. Thanks. I hadn’t noticed. I will update my data and re-visit the allocation of revenue to service/software.

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  • DesDizzy

    An interesting question is, at present rate of growth where does this put iTunes in 3, 5 and 10 years vis-a-vis competitors like Amazon, Walmart, Tesco and Carrefour with their current levels of growth.