App Store Retains Healthy Growth, ARKit Next Gold Rush

App Store revenue grew about 30% in 2017. Apple announced App Store revenue reached $300 million on New Year’s Day 2018, a single day record. They also reported for the period of Christmas Eve to New Year’s Eve, App Store revenue hit $890 million. Most importantly, Apple announced in 2017 iOS developer payouts increased 30% year over year, compared to 40% growth in 2016.  While not identical, developer payout growth mirrors App Store revenue growth.

Slower growth but still healthy. We estimate App Store revenue is the largest segment of Services accounting for 37% of Services revenue,  growing at 30%. Tonight’s App Store update is in line with our estimate calling for 30% App Store growth in 2017.  While 2017 App Store growth slowed to 30% from 40% in 2016, it’s still advancing at a healthy rate given the law of large numbers (largest segment of Services) and the fact that this growth is supported by only about 2% iPhone unit growth during that period.

Services revenue by segment. Below is our estimate of Services revenue by segment. Our full Services model expects growth to decline at a slow rate, going from 23% in 2017 to 15% in 2022.

ARKit, the next developer gold rush.  When Apple launched the iPhone SDK in March 2008, they correctly anticipated a gold rush for iOS developers selling apps on the new App Store, earning developers over $86 billion since launch. In the years to come, another iOS developer gold rush will begin around AR and ARKit. This is based on our belief that AR will fundamentally change how we interact with information throughout our days. AR (starting with ARKit), will enable the future of computing – a more immersive paradigm for computing in which the digital information we need is available within our real-world field of view.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.