Why iTunes' Growth Could Accelerate

After two years of innovation dormancy, Apple is looking at new partnerships and infrastructure that could accelerate iTunes' growth rate.

Mar 25, 2014 at 9:00PM

Apple (NASDAQ:AAPL) has been accused of being short on innovation since Tim Cooke took the leadership reins. Examining a transcript of the company's recent earnings call, the ratio of the word "revenue" to "innovation" shows up in the prepared remarks at a measure of 22:1. This is likely due to a management transition that required innovation be pushed to the individual product silos. This development transition simply took multiple years, and the innovation lag is coming to an end.

Itunes Threads

Apple's internally built CDN
A few weeks back, Dan Rayburn, independent industry analyst and entrepreneur, published an article discussing how Apple is building its own external Content Delivery Network to provide electronic entertainment to consumers. This is a step away from Apple's traditional modus operandi of using third parties externally. This could have both negative and positive implications for Apple's partners such as Akamai Technologies and Fusion-io (NYSE:FIO), who provide CDN services and data center infrastructure.

Apple appears to be putting effort into both delivering content independently and partnering with the pipe owners who deliver content, attacking the problem from multiple angles. According to AppleInsider, Apple is considering offering on-demand music on other platforms besides iOS in what would be a break from tying its services to its hardware. The company also appears to be in discussions with Comcast to offer a streaming set top box that will have premium Internet access and ensure the seamless distribution of video content for movies. Regardless of how this plays out, this effort shows that Apple is pushing development of the iTunes business, which generates $4.4 billion in revenue and is growing at 19% year-over-year.

Innovation dormancy may be over
The combination of internal infrastructure development, partnerships on multiple fronts, and embracing of third party operating systems could signify that Apple is coming out of its innovation dormancy like a rocket. The problem with having a single person leading all of the great innovations is that the company is limited by that person's abilities, even if the vision is near limitless. As Tim Cook said on the fourth-quarter earnings call, "We have zero issue coming up with things we want to do that we think we can disrupt in a major way. The challenge is always to focus to the very few that deserve all of our energy."

iTunes is a business in itself
Clearly, both consumers and investors can benefit from improved content speeds and better, cheaper content access. At $4.4 billion, iTunes represents 8% of revenue, and it is growing at three times the overall revenue growth rate. However, this is primarily due to App Store sales, as opposed to content such as music or video. If Apple has found a way to make iTunes the go-to place for content streaming, there could be an inflection point coming up in this growth rate.

Partners benefit as well
Fusion-io could be a derivative play on the expansion of iTunes as well. As a supplier of flash caching to improve server performance, and an existing Apple partner in its data centers, the slowdown in equipment purchasing could be reversing. Fusion-io has been called One of the Great Turnarounds of 2014, and Apple's data center expansion would be a key growth driver for the company.

Trying to find the next Apple? Read this report
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have done it before with the likes of Amazon and Netflix. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

David Eller has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers