Apple's search ad business could be a money maker for the Cupertino, California iPhone maker in the years to come, with Wall Street firm Bernstein predicting it could reach $2 billion by 2020.
CNBC, citing a research report by Bernstein Analyst Toni Sacconaghi, reported that his estimate for close to $2 billion in search ad revenue by 2020 was conservative, and that the company is likely to meet or surpass its goal of having services revenue of $49 billion by the end of that year.
Search ads appear at the top of App Store pages, noted the report, and app makers purchase specific keywords for their ads. The analyst thinks Apple will grow its search business by adding more areas for those ads. What's more, the analyst said search ads aren't offered in China, marking a big growth opportunity for the company.
While China represents a big opportunity for Apple to grow its search ad business, iPhone sales in the country aren't doing particularly well. Earlier this month, Goldman Sachs warned that the iPhone maker could post earnings that disappoint. CNBC, citing the Wall Street firm, reported at the time that Goldman Sachs warned of several signs of “rapidly slowing consumer demand” in China, which could impact demand in the fall.
According to Goldman Sachs Analyst Rod Hall, the smartphone market in China has shown some improvement during the second quarter. Still, his forecast for third-quarter sales at Apple predicts a decline of 15 percent on a year-over-year basis. The analyst did note that the newest crop of smartphones Apple unveiled in September could counter some of the weakening demand, but that overall, the decline could hurt the bottom line for Apple.
“Much of Apple’s upside potential, in our thinking, was centered on Chinese demand for larger screen sizes,” the analyst wrote. “Should weak consumer demand persist and impact the higher end of the market, Apple’s potential to beat and raise in FQ4’18 earnings is likely reduced.”