Apple (AAPL) might be the world’s largest company by market cap, but one area where the tech giant lags its peers is in the advertising market. Evercore’s Amit Daryanani estimates Apple’s ad business is currently worth around $2 billion, the bulk of which is generated from App Store search, with News and Stocks contributing on a smaller scale.
Recently the analyst spoke to Big Three Wheels marketing agency founder Michael Kenny, an expert on brand strategy and all things advertising, to gauge Apple’s positioning in the space.
Kenny admits his small and medium clients are “still heavily skewed towards FB/GOOG spending.” However, Apple’s recent ATT (app tracking transparency) initiative to help users protect their privacy and safeguard personal data has “significantly altered the landscape,” and helped Apple gain “some share” in the digital advertising market.
While digital advertising’s big players’ targeting abilities still count as an advantage, now that Apple has virtually made it impossible to directly target its users, it has created a more “favorable environment” for their own solution. There’s also the issue of the “ethical use of data” to consider, an issue which Kenny notes is increasingly on advertisers’ radars. When combined with ATT which has “significantly reduced” the advantages held by large competitors, more ethically minded advertisers would naturally favor Apple.
The big question, ultimately, is can Apple become a major advertising player? Kenny seems to think so, believing the company can “gain share in advertising and become a major platform within five years.” The main challenge is to provide an advertiser friendly platform without sacrificing Apple’s “commitment to sleek UI’s and privacy.” As the Apple Maps app design is less likely to be impacted by the addition of ads, Daryanani thinks it could serve as a “natural first point of expansion.”
“Net/net,” the 5-star analyst wrapped up, “We continue to see advertising as a natural market for Apple to enter which can provide an offset to any future regulatory action that may impact its services business.”
As such, Daryanani reiterated an Outperform (i.e. Buy) rating on AAPL shares, backed by a $180 price target. Investors are looking at upside of 24% from current levels. (To watch Daryanani’s track record, click here)
Advertising opportunity or not, most of the Street remains in Apple’s corner; based on 19 Buys vs. 6 Holds, the stock boasts a Strong Buy consensus rating. Over the next 12 months, shares are expected to appreciate by 18%, given the average price target stands at $169.86.
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.