Defining what exactly qualifies as “mobile app stock” can be a tricky exercise. In fact, so many businesses interact with today’s modern app economy that an intentionally broad definition of the term could probably include the majority of businesses today. (Rest assured, that will not be the case here.)
Narrowing the scope considerably, this article will focus on a varied set of companies that derive a significant number of their usage or sales, often both, from mobile applications of one form or another. Keeping that definition in mind, we will explore what makes Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), and Activision-Blizzard (NASDAQ:ATVI) three top mobile-app stocks set to thrive in the year ahead, and beyond.
The world’s largest technology company unsurprisingly sits at the epicenter of one of the largest app businesses in the world. The tech giant’s App Store serves as the gatekeeper between millions of developers and the hundreds of millions of people who use its various iDevices. Unsurprisingly, this makes for an incredibly lucrative business for Apple.
Apple folds App Store revenue into its services segment, so we can’t identify how much money Apple makes directly from its dominant position powering the app economy. Its last update on the matter came in 2013, when Apple said App Store revenue topped $10 billion.
Considering that Apple’s installed base has soared in the years since that update, it’s safe to assume the App Store’s revenue run rate has increased considerably in the years since. In fact, the App Store alone would likely be a Fortune 500 company as a stand-alone entity, which speaks to the pivotal place Apple occupies in mobile apps, today.
Whereas Apple profits as an intermediary between developers and consumers, Facebook is a shining example of a company whose highly profitable business model leans heavily on its own mobile app. The world’s largest social network started as a desktop product, but Facebook has quickly morphed into a mobile-first business, powered largely by its suite of leading mobile apps.
In addition to the core Facebook social network, the company also owns fast-growing Instagram, WhatsApp, and Facebook Messenger, each of which is also mobile first in nature. In fact, Facebook’s business empire is so predicated on mobile that 83% of the company’s total revenues came from mobile advertising during the company’s most recent quarterly report.
The company owns three of the 10 most downloaded free apps in the U.S. Google Play Store and iOS App Store, according to researcher App Annie. This is a testament to Facebook’s utter dominance of social-media apps, giving the company a powerful competitive position from which to thrive for many years.
Looking to another specific subset of the mobile-app world, mobile gaming is likely to become an increasingly prominent form of entertainment in the years to come. Thankfully for its shareholders, gaming giant Activision Blizzard already has aggressively moved into this space, to great effect.
By far, the most important data point behind Activision Blizzard’s move into mobile gaming is its $5.9 billion acquisition of mobile-game leader King Digital, the company behind the highly popular gaming franchise Candy Crush. Combining Activision’s leading console and PC franchises with King’s deep expertise in mobile-app gaming, the deal should help prepare Activision to expand its deep lineup of games to cater to another fast-growing area of the global gaming market.
In general, mobile games can provide massive, if not fleeting, profits when companies find a recipe that truly resonates with audiences. As just one example, King Digital generated $567 million in profits from revenue of $1.9 billion in 2013 — the year it filed to go public — mostly due to the viral success of Candy Crush. However, these profit streams can dry up almost as quickly as they materialize.
This isn’t necessarily a negative in the context of Activision Blizzard’s business, though. In fact, the game maker can use King’s expertise in creating hit mobile games as another, secondary channel through which it can monetize its many pre-existing gaming franchises.
In this way, the company enjoys an asymmetrical risk-reward proposition if it can, for instance, produce a hit mobile adaptation of its Call of Duty franchise on the order of Candy Crush, and its built-in fan bases for its many gaming franchises only increases the odds of a game going viral. Because of this, Activision-Blizzard stands out as an interesting way to invest in the continued rise of mobile apps today.