Artificial intelligence may be the phrase of the moment in big tech, but Apple has a giant opportunity in advertising, some analysts say.
Needham analysts Laura Martin and Dan Medina raised their price target on Apple stock to $260 from $220, and reiterated a Buy rating on Wednesday. They cited the company’s $110 billion share-repurchase authorization, while peers are devoting dollars to Generative AI instead.
“However, over a three-year time frame, Apple’s single-digit revenue-growth rate feels increasingly at risk to us,” analysts wrote. “We believe that Apple should build an advertising business, just as Amazon.com has done.”
The team offered a few reasons Apple should jump into advertising.
First, total global ad spending this year will be $966 billion, and mobile advertising will be $500 billion, dwarfing the consensus call for Apple’s 2024 revenue of less than $400 billion.
Second, ad margins tend to be 70% to 80%, which would bolster margin expansion without requiring price hikes on products.
And third, what could this mean for the company’s balance sheet? “We calculate that selling CTV [Connected TV] ads on AppleTV+ alone would add 140 basis points to revenue growth, thereby doubling Apple’s consensus revenue growth of just 1% in fiscal 2024,” analysts wrote. “Adding ads to the app store would accelerate revenue growth even faster.”
Apple stock was up 0.5% to $229.75 in premarket trading Wednesday, while futures tracking the S&P 500 are up 0.3%. A day prior, the iPhone maker closed at $228.68, edging its market capitalization to $3.507 trillion — the first company to close with a market value of $3.5 trillion or more.