|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | |
JANUARY 26, 2004
By Alex Salkever Apple's Overlooked Upside [Page 2 of 2] 100 MILLION DOWNLOADS. Then there's the iTunes Music Store. Jobs has admitted that Apple makes no money selling digital downloads. That may be true for now. But the legions of Apple watchers who have already decided that this will always be the case are wrong. With the HP distribution deal, Apple's iTunes Music Store will appear on the desktops of about 25% of all consumer PC purchased in the coming year because HP is tops in consumer PC market share. Considering the growth of the iTunes Music Store and downloads in 2003 without the assistance of any marketing by a PC partner, Apple still managed to clock 30 million downloads. Adding HP to the mix could easily push the total to over 100 million in 2004 and well above that in the future. At those types of volumes, Apple will make money. Here's another thing: From a third to a half of those downloads are album sales. Apple makes more money on those because it's paying a smaller percentage per dollar of transaction costs to the credit-card companies. Those transaction and processing fees are largely fixed on a per-transaction basis. So in the not-so-distant future. Apple could well pull in profits in the low double-digits from iTunes. RECURRING REVENUE. The biggest shocker in Apple's latest numbers was $238 million in revenues under the "software and other" category. That's up 53.5% from $155 million in the same period last year. A huge chunk of that came from purchase of the upgraded Panther version of the OS X operating system. Apple reported $60 million or so on that front, with 600,000 Macheads buying Panther. Apple is onto something here. Each OS upgrade runs $129. The new iLife suite costs $49. The iChat audio/visual software costs $30. And hundreds of thousands of Mac users are paying $99 per year to subscribe to the .Mac program, which offers online backup and storage, calendar syncing, and free e-mail accounts. Jobs & Co. is clearly in the process of building a recurring revenue stream of hundreds of dollars per customer. Granted, not all Apple buyers will bite, but if even 10% of the faithful buy in each year, that could mean hundreds of millions in new revenues. "JUST TOO EXPENSIVE." Of course, Apple could stumble any number of ways -- and trip up investors. iPod competition could heat up and put the brakes on Apple's rapid revenue growth in that area. Sales of the iBook, which had defied gravity despite the platform's dated design, could plummet amid new and intense laptop competition. And Apple's much touted growth in laptop sales could turn tepid in a hurry if the appetite for laptops plateaus. Then there's the old argument, which still holds more than a grain of truth: "They're just too expensive. They have a nice niche on the creative side, but it's a matter of time until Wintel [the combination of Microsoft's (MSFT ) Windows operating system running on machines with Intel chips] offers a better deal," says Eugene Walton, founder of independent equity research firm Walton Holdings. However, he acknowledges that Apple has a new growth path in the iPod and that it has managed to keep its operating margins on the high side compared to other PC makers. All told, though, the Street might be missing the forest for the trees in Apple's latest numbers, and lots of green could shake loose if Jobs & Co. realize even a little bit of the upside that investors seem to have overlooked in the earnings report.
 Salkever is BusinessWeek Online's Technology editor Edited by Beth Belton
BW MALL
SPONSORED LINKS
Buy a link now!Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
