Apple, ad man

"Advertising emerged as the largest Services driver in FY21." — Analyst Katy Huberty

From a note to Morgan Stanley clients that landed on my desktop Tuesday:

Apple's 10-K indicates that the three largest drivers of Services net sales growth in FY21 were 1) advertising, 2) App Store, and 3) cloud services, which compares to 1) App Store, 2) advertising, and 3) cloud services in FY20.

Stronger advertising Services revenue in FY21 compared to FY20 isn't surprising given that advertising budgets pulled back in 2020 but recovered sharply in 2021 as the economy recovered. 'Advertising' primarily includes Google's licensing payments to Apple, as well as revenue from Apple's App Store search ad business.

We believe the majority of the Google payment is variable, meaning it is largely tied to Google's mobile search revenue, which accelerated in 2021.

Apple's advertising business is still small; thus, it was likely only a minor contributor to the stronger performance in FY21.

My take: Small compared to Google and Facebook, for sure. But Services generated more than $68 billion in revenue for Apple, and advertising -- Google's and Apple's -- was the largest contributor.


  1. David Emery said:
    That’s income this Apple shareholder would be happy to see Apple forego. I think on-line advertising has become a blight and an excuse for bad behavior. I’d rather see the Apple ecosystem be the poorer but wiser when it comes to ad revenue.

    November 2, 2021
  2. Robert Paul Leitao said:
    Broadening the revenue base for services is a good thing for shareholders. Diminishing the dependence on games for services revenue growth benefits Apple’s long-term strategy and mitigates the impact and risk of forced acceptance of 3rd-party payments systems in the App Store. I consider Apple One a value proposition for Apple customers and a “sleeper” success for the company already. Rising advertising revenue without risking customer privacy is a winner for everyone – Apple, the company’s customers and shareholders. It’s a trifecta.

    November 2, 2021
  3. Lalit Jagtap said:
    Ethical Advertising is a good business for everyone including Apple. Do not use users data without permission and do not track users without users approval.

    November 2, 2021
  4. Alessandro Luethi said:
    When Apple acquired Beats I remeber them talking a lot about “curation” in regards to music. “Curated advertising” would also be a thing!

    November 2, 2021
    • Kirk DeBernardi said:
      Curated advertising. The Holy Grail.

      November 2, 2021
  5. Kirk DeBernardi said:
    If you’ve got eyes and ears, you’ve got ads.

    Even the gardener of the garden isn’t immune.

    November 2, 2021
  6. Horace Dediu said:
    ‘Advertising’ consists of Google’s TAC. Traffic acquisition costs is what Google pays; “licensing” is what Apple historically reported. I suspect this became variable–as in a direct cut of what Google’s revenues are from iOS devices. If and _when_ the switch from flat rate to variable rate occurred, the reporting name went from “licensing” to “advertising”. This is to reflect the equity Apple has in the Google business. Do not confuse this with Apple running ads on the App Store even though the two are bundled in the reporting. Apple’s own ads are probably a rounding error on the Advertising line item. My estimate for the run rate of what used to be called “services&licensing” but is now is $30b/yr for 2021 calendar year. Of that “Advertising” is an unknown proportion but I would estimate between 1/3 and 1/2.

    November 3, 2021

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