If the Apple (NASDAQ:AAPL) App Store was its own company, it would rank high among the Fortune 500. Apple reports that it brought in over $20 billion in gross revenue through the App Store during 2015. Apple keeps $0.30 on every dollar, so selling apps generated about $6 billion in revenue for Apple last year. For reference, that's nearly as much revenue as Netflix (NASDAQ:NFLX) is expected to bring in for 2015.
But $6 billion hardly moves the needle for Apple, which reported revenue of $233 billion for fiscal 2015. Still, the growth in App Store sales is a good indicator of how much hardware Apple is selling, which is where the company really makes its money. While not a perfect indicator, it can shed some light on Apple's core business of selling phones, tablets, and computers.
Growth from the App Store
The last time Apple told us how much revenue the App Store generated was at the end of 2013, when it said it sold more than $10 billion worth of apps. Last year, it only said that sales grew more than 50%, indicating more than $15 billion in sales.
Apple also says it's paid out nearly $40 billion to developers in its lifetime, a $15 billion increase from $25 billion last year. That indicates that Apple's app sales were closer to $21 billion in 2015 based on its payout structure. That 40% growth in only a small slowdown from the 50% growth it experienced last year. Again, comparatively, Netflix is expected to grow revenue 23% for 2015.
Apple also gave good news about App Store sales during the end of December. Worries about sluggish iPhone sales have caused Apple stock to decline over the past few weeks. But Apple reports that it sold more apps during the past two weeks of December than ever before -- $1.1 billion worth. While this isn't a perfect indicator, it's a good sign that Apple is continuing to grow its iPhone user base with the release of the iPhone 6s and iPhone 6s Plus.
Only Apple knows for sure
The growth in App Store sales is not a sure sign that iPhone sales are continuing to grow. For one, we already know that Apple experienced huge growth in the number of iPhones it sold last year. iPhone unit sales increased 37%, with net sales increasing 52% thanks to the success of the larger and more expensive iPhone 6 Plus.
But analysts expect sales growth to slow to a trickle when Apple reports its first quarter results as rumors fly about order cuts at Apple's supply chain partners. Most recently, Nikkei reported that suppliers are bracing for orders from Apple 30% lower than originally expected. The problem with these rumors are twofold: We don't know what the original expectations were, and we don't know how credible they are. The reports from Apple -- like it's App Store sales -- are as credible as it gets.
During the company's fourth-quarter earnings call, CEO Tim Cook specifically mentioned that he expects iPhone shipments to continue to increase year over year for the first quarter. Analysts have lowered their expectations to levels that barely make that statement true, expecting growth of only 2% or so. They expect Apple to experience its first ever year-over-year decline in iPhone shipments in the first quarter of 2016.
While the App Store sales numbers provide some strong and credible data indicating continued growth in iPhone sales, Apple is facing "the mother of all comps," as Tim Cook called it. Still, the App Store is clearly growing well, indicating the iPhone business remains very healthy. Investors should look for further guidance for the second quarter from management when the company reports earnings later this month.