Apple's App Store ads could be a $2 billion business by 2020, Bernstein analyst predicts

Key Points
  • Bernstein analyst Toni Sacconaghi predicts that Apple will generate over $500 million in App Store ad revenue this year, and about $2 billion by 2020.
  • Apple has been trying to diversify its business by expanding its services offerings, including Search Ads, Apple Music and iCloud.
  • Apple is set to report its fourth quarter earnings on Nov. 1.
Apple CEO Tim Cook greets shoppers at a Palo Alto Apple store on Sept. 21, 2018 for the release of the iPhone XS and iPhone XS Max. 
CNBC

Apple's Search Ad business could generate over $500 million in revenue this year and quadruple that to $2 billion by 2020, Bernstein analyst Toni Sacconaghi claims.

If correct, the prediction would mark a significant milestone for Apple, which has been working to develop its services businesses, like iCloud and Apple Music, to offset slowing iPhone sales. Apple's Search Ads appear at the top of App Store pages, marked by a blue tint and "Ad" marker. App makers can buy specific keywords they want their app ads to appear next to, similar to the way Google search ads work on the web.

Sacconaghi said his estimate that Apple could approach $2 billion in Search Ad revenue by 2020 was "conservative" in note published Monday. The development means that Apple is likely to meet or exceed its goal of doubling its Services revenue by the end of 2020 to $49 billion.

Apple is most likely to grow its Search Ad business by expanding where it's offered and offering more ad spots, Sacconaghi said on CNBC's Halftime Report. He said that Apple's Search Ads are not yet offered in China, representing a huge opportunity for growth. Unlike search ads on Google and Amazon, Apple's are currently limited to one ad on the first page of results, leaving it room to include more ads in the future.

If Apple achieves these revenue predictions, by 2020 its Search Ad business would be about the same size as Apple Music was last year, but with much higher gross margins, Sacconaghi wrote.

Apple is set to report its fourth-quarter earnings on Nov. 1.

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