2013 App Charts – Top of the Pops

Twitter and Apple fare badly on smartphone usage.

• The smartphone app. charts for 2013 are out (for the US anyway) and it makes interesting reading (Nielsen).
• Smartphones in use are 52% Android and 41% iOS which is not a big surprise.
• Given Apple’s recent surge with the iPhone 5s, I would expect the balance to move a bit towards iOS in early 2014.
• On the App. front Facebook and Google rule the roost.
• Facebook is top with 103m unique users in the US with Google applications taking up the next 5 (!) slots.
• 7^th is Instagram followed by Apple Maps in 8^th position.
• Twitter is a lowly tenth and saw its usage grow in 2013 by less than both Instagram and Apple Maps.
• This is great news for both Google and Facebook as their businesses are dependent on usage in order to drive advertising revenues.
• Given these figures, it looks certain that their revenues from mobile will again see healthy growth in 2014.
• However, I am more concerned about Apple and Twitter.
• I am not worried about Microsoft yet as it is still in the very early stages of trying to get itself into this space.
• These figures closely match RFM research that found that Apple’s greatness comes from its ability to deliver third party apps. and services in a fun and easy to access way.
• The user attachment to Apple’s own applications is far weaker.
• The problem comes when the ecosystems are more mature and all apps. are available on all ecosystems to an equal level of quality.
• How then does Apple differentiate itself and earn a high level of profitability?
• I think that it doesn’t and as a result unless it develops hugely popular services of its own, is margins will begin to slip as its edge erodes.
• Twitter also concerns me greatly.
• This company has a market cap of $35.3bn with 2014 EV/Sales of 41.5x and yet only manages to register a lowly 10^th when it comes to usage.
• Facebook with the number 1 and number 7 slot is valued at 12.7x 2014 sales and looks to me to be far better value.
• Twitter is growing revenues faster (51% over the next 2 years compared to Facebook at 26%) but that does not make it worth over 3x the multiple.
• Furthermore, it does not have the usage and it is usage that generates advertising revenues.
• I am comfortable that Twitter can grow revenues to $2bn, but beyond that it must look outside of its core microblogging universe.
• That alone will keep it growing nicely until 2016 but at this valuation that is already more than priced into the shares.
• I continue to value the shares at $22.76 and think that there is only one rational option for any investor with a hint of a fundamental bias.