Earnings potential of this business
Out of the 575 million registered iTunes users, approximately 300 million iTunes users are in the cloud actively. If 100 million of those users start listening to iRadio, the company topples Pandora’s monthly active user base of roughly 70 million users. And if only 5% of those early iRadio adopters start out by paying for iTunes Match, Apple Inc. (NASDAQ:AAPL) will be earning in the region of $125 million annually from subscriptions alone. And Apple will be easily be able to monetize the rest of its radio crowd with at least $10 per user on an annual basis (which is a conservative estimate), primarily because audio ads command a much higher cost per thousand impressions (CPMs) relative to other forms of display ads.
After paying out revenue share agreements with copyright holders, Apple Inc. (NASDAQ:AAPL) can easily earn more than $1 billion annually in incremental revenue from this iRadio business. And that doesn’t even take into account the additional a-la-carte music sales this service will drive to iTunes.
In its most recent quarter, Pandora Media Inc (NYSE:P) earned ~84% of its total revenues from advertising sales. Apple’s monetization from this iRadio service will likely follow a similar trajectory because the company will generate most of its revenues from radio and banner ads.
Broader move towards advertising next?
Even though advertising is a non-core business for Apple, it has the potential to develop into a much bigger portion in the long-run. Apple Inc. (NASDAQ:AAPL) has a lot of user information which will enable the company to earn a more for its ads compared to Pandora, due to much more enhanced targeting capabilities.
The struggling Pandora Media Inc (NYSE:P) is expected to earn around $372 million in mobile ad revenue, behind ad giants Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB), according to eMarketer. However, Apple can easily overtake Pandora in that ranking and be a much bigger player in advertising. Even though advertising is not a core business for Apple, iAds can expect to generate a decent amount of revenues for Apple Inc. (NASDAQ:AAPL) in the future.
Apple’s iAd Workbench is enabling developers to acquire users based by placing ads on iOS similar to Google Inc (NASDAQ:GOOG)’s AdWords. While Apple’s revenues from advertising are likely to remain small in the near term, the company might be able to generate more meaningful amounts in the longer term.
Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG).
The article Can Advertising Drive Apple’s Revenues? originally appeared on Fool.com.
Ishfaque is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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