Apple and Google mixed doubles, can Meta all in Metaverse survive Jedi?

Apple’s future revenue will be significantly higher as its advertising and wearable businesses grow.

Going forward, we expect Apple’s future revenue to rise significantly as the advertising and wearable businesses grow.

Apple passed a new privacy policy, declaring war on Meta Platforms, which relies on advertising for most of its revenue.GOOG also dealt a fatal blow to Meta’s future ad revenue, when it announced similar changes to the privacy terms for all Android phones.

In addition, AAPL is rumored to launch an AR/VR headset in 2023, and the company may seek to dominate the emerging gaming and Metaverse market. AAPL’s previous electronics products have beaten other competitors such as Sony’s Walkman, Nokia, Blackberry and Pebble.

With the rollout of a new privacy update, Apple (AAPL) sent a warning of war to Meta Platforms (FB), one of the leading online media companies besides Alphabet (GOOGL). In fiscal 2021, Meta reported $114.93B in ad revenue, while GOOG reported $209.4B in ad revenue for the same period.

On the other hand, without a formal breakdown, Bernstein estimates AAPL’s ad revenue to be around $3B in fiscal 2021.

Assuming AAPL catches up in the global advertising market, its TAM is huge. Meta reports that the U.S. and Canada regions have a similar revenue market share of 47.1%, with iPhone users having the largest share at 46.9%. Likewise, GOOG reports that 46% of its revenue in 2021 will come from the United States.

Given that the mobile advertising market is expected to grow to $782.1B in 2028 at a CAGR of 34.8%, we expect Meta to lose significant advertising revenue as AAPL aggressively expands its advertising business.

Assuming the rumors are true, AAPL will also enter the AR/VR market by 2023 at the latest.

In 2007, AAPL launched its first smartphone, the iPhone, breaking the dominance of Nokia and BlackBerry in the mobile phone industry. Additionally, the company released the Apple Watch in 2014, combining fitness tracking with call and text capabilities, making it the “explosion star of wearables.”

Assuming a similar impact, FB’s Metaverse strategy will encounter certain challenges moving forward.

In this article, we focus on the impact of AAPL’s privacy policy changes and potential AR/VR strategies on Meta’s future growth.

01Apple  Privacy Policy: Vindicator or Profit-driven?

Since April 2021, AAPL has released several privacy policy updates for its iPhones, as part of its iOS 14.5 and 15 updates, its users have the option to block advertiser identifiers.

As of December 2021, a whopping 46% of the 86% of iOS devices running the latest software update have opted out of App Tracking Transparency.

While other companies like Snap and Meta first developed their own technology to drive their advertising strategies within their own apps, the latest system privacy settings make ads less effective at reaching potential customers.

Instead of tracking individual users, the new restrictions appear to target groups with similar patterns/interests whose information is anonymized and aggregated for privacy reasons.

The new targeted ads have seen many marketers see their revenue drop by as much as 40%, and Meta reported on its FQ1’22 earnings call that it faces a $10 billion headwind in future ad revenue.

This resulted in a significant reduction in the value of Meta’s shares, from $323 on February 2, 2022 to $206.16 on February 18, 2022.

Apple and Google mixed doubles, can Meta all in Metaverse survive Jedi?

AAPL Service-Based Revenue

Although ostensibly ethical, consensus estimates there are clear economic motives behind AAPL’s latest privacy update: AAPL’s “advertising, AppleCare, cloud, digital content, payments, and other services” hidden in its services revenue segment.

While not breaking out the individual components in its financial results, Bernstein estimates that AAPL generated about $3 billion in ad revenue in fiscal 2021. This is a huge increase from the estimated $300 million in fiscal 2017.

“I think Apple has been able to take the moral high ground and claim they’re focused on user privacy,” said Brian Bowman, CEO of Consumer Acquisition. “But in reality, they do market their services to Facebook and Google. I see what they’re doing. It’s an attempt to take back control.”

AAPL relies on SKAdNetwork for targeted advertising, which is touted to be more private than the personalized ads used by many other apps.

Additionally, AAPL has Apple Search Ads, which allow app developers to pay to rank high in searches on the Apple App Store.

AAPL’s ads now account for 58% of all iPhone app downloads in fiscal 2021, more than triple the market share of 17% in fiscal 2020 after the most recent privacy update.

Shani Rosenfelder, head of content at AppsFlyer, said: “We’ve really seen a huge increase in Apple’s search ad market share. They’ve become the new No. 1 player, and they’ve surpassed Facebook, which used to dominate iOS.”

According to consensus estimates, AAPL could generate up to $5 billion in revenue from in-app advertising revenue in fiscal 2022, a 66% year-over-year increase, and up to $20 billion in 2024, a CAGR of 60.69%.

Additionally, the mobile advertising market is expected to grow from $96.4B in 2021 to $782.1B in 2028, a CAGR of 34.8%.Therefore, with future advertising revenue growth, AAPL will gain more market share at the expense of Meta’s growth.

02Record  revenue, AAPL expands AR/VR field

According to rumors, AAPL plans to launch VR/AR headsets in late 2022 or 2023, with mass production planned for August 2022.

This is not surprising given that AAPL has aggressively acquired several AR/VR technologies over the past decade: Spaces and NextVR in 2020, for example.

AAPL has been silently building its library of related technologies while waiting for the right moment. With the launch of the Metaverse concept in September 2021 and the launch of multiple forms of VR equipment, Apple and game fans alike will be highly anticipating the groundbreaking release of AAPL.

Given that AAPL has successively launched several hit products with its disruptive technology over the years, we expect AAPL’s AR/VR equipment to be very popular, driving its revenue forward. The company’s past products have had a significant impact on related industries, such as:

  • The iPod eliminated Sony’s Discman and Walkman in 2001.
  • The iPhone in 2007 killed Nokia’s dominance in the mobile phone market.
  • The 2008 MacBook Air pioneered thinner, lighter laptops.
  • The 2010 iPad sold more than 19 million units in the first 12 months.
  • The Apple Watch in 2015 surpassed Rolex in unit sales by 2017 and the entire Swiss watch industry by 2018.
  • The 2021 iPhone 13 accounts for a large portion of AAPL’s $71.6B in Q1’22 revenue.

It is clear that AAPL is the market leader in smart technology products given its revolutionary software and design. With consumers’ persistent demand for its new product launches, it’s no surprise that its AR/VR headset product launches.

In turn, it will compete directly with Meta’s Oculus Quest 2 and the future Project Cambria, which is also due in 2022.Although representing a small fraction of Meta’s revenue stream in fiscal 2021, less than 3%, the ultimate success of its Metaverse project depends on the adoption rate of its VR hardware.

Therefore, given AAPL’s excellent track record, investors should focus on Meta’s future growth as it bets heavily on the Metaverse concept.

By the end of 2021, FB has sold about 10 million Oculus Quest 2 units and Sony has sold 6 million PlayStation VR units.

Despite being slower to use compared to other smart devices, we’ve noticed a rapid uptick in adoption of the technology during the pandemic as remote work becomes the norm.

The AR and VR headsets, software and services market reached $12 billion in 2020, a 50% increase from 2019 levels. In addition, the global AR/VR combined market is expected to grow to 200 billion by 2027, with a compound annual growth rate of 68.5%. Therefore, we expect AAPL to generate significant revenue from its wearables, home and accessories segment once AR/VR demand picks up.

Over the past five years, Apple’s revenue has grown significantly at a compound annual growth rate of 11.9%.

Its revenue grew to 365.81B in fiscal 2021, up 33.2% year over year and up 40.6% from fiscal 2019. In addition, the company’s net profit increased by 64.9% YoY and 71.3% YoY in FY2019.

Despite global supply chain issues and chip shortages, AAPL reported record FQ1’22 revenue of $123.94B, an impressive 48.6% sequential growth and 11.2% YoY growth.

Additionally, the company reported a 9% year-over-year increase in its active installed base of equipment, from 1.65B in FQ1’21 to 1.8B in FQ1’22.

Apple and Google mixed doubles, can Meta all in Metaverse survive Jedi?

AAPL Income and Net Income

Apple and Google mixed doubles, can Meta all in Metaverse survive Jedi?

AAPL Income Comparison by Category

Its iPhones accounted for the largest share of its revenue at $71.6B in 1QFY22 at 57.5%, mainly due to strong demand for the iPhone 13. Additionally, the company reported 18.4% and 67% quarter-over-quarter growth for its Macs, respectively.Wearables, home and accessories sales in Q1’22. On top of that, its services (including advertising) revenue was $19.5B, up 6.5% sequentially and up 23.4% year over year.

Although it previously lost $6 billion in sales in FQ4’21 due to global supply chain issues.

Other industries, such as Apple’s auto and medical device makers, are facing challenges meeting demand and are experiencing massive delays and losses.

So, despite the multiple headwinds the industry faces, we can get a clear picture of how its global business is doing. Going forward, we expect AAPL to continue its outperformance, which in turn will boost its stock’s long-term performance.

03  Apple and Google each punch, FB ushered in the challenge

Since 2016, Meta’s revenue has grown at a CAGR of 33.67%.

In fiscal 2021, the company reported revenue of $117.92B, an increase of 37.18% year over year and a 66.8% increase from fiscal 2019.

Notably, Meta’s $114.93B in ad revenue accounted for the largest share of its sales in fiscal 2021 at 97.4%.

With the company highlighting $10B worth of headwinds in fiscal 2022 due to policy changes on iOS, it’s no surprise that investors are troubled. Additionally, we also expect Meta’s earnings to suffer significantly going forward, given its fiscal 2021 gross margin of 80.8%.

Apple and Google mixed doubles, can Meta all in Metaverse survive Jedi?

Meta’s ad revenue was hit even harder by GOOG’s announcement on February 16, 2022, as GOOG changed its privacy policy for all Android phones.

Given that Android smartphone users account for 69.74% of global mobile phone users, its impact on Meta will be worse than on iOS.

Despite GOOG’s commitment to a more “long-term, collaborative approach to privacy-preserving personalized advertising” over the next two years, its headwinds for Meta have finally come, with Meta shares falling another 2% following the GOOG announcement.

In addition to the $10B headwind, Meta’s sequential growth in household daily active persons (DAP) is slowing from 1.8% in FQ3’21 to 0.3% in FQ4’21.

Additionally, the company has invested $10B in its Metaverse strategy, which is a staggering amount considering that both Meta’s top and bottom lines will decline in the future.

The CEO himself estimates that there are still five to ten years before the vision of the Metaverse is realized. As such, we might expect continued spending spree from Meta’s Reality Labs division, which could further negatively impact investor sentiment, as Metaverse has yet to generate significant revenue for the company in the years ahead.

Reality Labs generated just $2.2B in revenue in fiscal 2021, compared with $114.9B in advertising revenue. Combined with fierce competition from ByteDance’s TikTok, Meta may have to admit that its days as an advertising giant are over.

Until its Metaverse is ready and widely adopted, some describe it as a “dystopian world.”

04  Expected to both grow, waiting for a retracement

Apple and Google mixed doubles, can Meta all in Metaverse survive Jedi?

AAPL and Meta projected revenue

AAPL’s revenue is expected to grow at a CAGR of 5.39% over the next three years, while Meta will report a CAGR of 13.83% over the same period.

These numbers point to a marked slowdown in revenue growth for both companies going forward. Nonetheless, for fiscal 2022, consensus estimates AAPL and Meta will report revenue of $395.15B and $132.63B, representing year-over-year growth of 8% and 12.4%, respectively.

Therefore, both companies are still expected to report favorable growth going forward.

AAPL currently trades at 6.57x EV/NTM Revenue, higher than its 3-year average of 5.17x. Given its recent performance in FQ1’22, AAPL is now clearly overstated.

Nonetheless, we expect Apple to continue its strong business and stock performance, given the multiple tailwinds to the company’s growth.

Therefore, aggressive investors may still buy AAPL given its ability to overcome global supply chain issues and strong demand cycles. But we encourage other investors to wait and see if there is a pullback.

Meta, on the other hand, trades at 3.98x, below its 3-year average of 6.91x.

Despite the low valuation, we don’t think this is a good entry point for Meta. Given the recent GOOG announcement, we expect Meta to pull back further in the future.

There is no doubt that Meta is a solid stock, however, given the recent market reaction, we encourage interested investors to be patient before adding Meta to their portfolio.

Therefore, we currently only rate AAPL a Buy and Meta stock a Hold.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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