Apple Inc. (AAPL)'s App Store Sales Surge In 2013

Apple Inc. (NASDAQ:AAPL)’s App Store customers spent more than $10.0 billion in 2013. The company recently announced that December spending alone accounted for $1.0 billion. Customers downloaded almost 3 billion apps making it the most successful month in the company’s history.

The strong growth in overall sales reflects Apple’s success in building an iOS-based ecosystem that continues to attract app developers. Since the launch of App Store in 2008, Apple has paid almost $15.0 billion to developers, after deducting its 30% share. Apple is estimated to earn $3.0 billion in revenues from App Store in 2013.

The phenomenal success of App Store solidifies Apple’s position against Google’s (GOOG) Android platform. Similar to Apple’s iOS ecosystem, the Android platform has also started attracting developers primarily due to the increasing sales of Android-based smartphones and higher number of apps download from Google Play store.

However, it has been noted that iOS users tend to spend more compared to Android users, making Apple’s platform much more attractive to developers. According to IBM, iOS users spent $115.42 per order, compared to $83.56 per order by Android users during fourth-quarter 2013.

The higher spending is primarily driven by Apple’s affluent customer base and partnerships with leading carriers. Moreover, customer engaging apps, such as the Candy Crush Saga, drove the higher sales.

We believe increasing iTunes sales (fastest growing segment in the fourth quarter) will boost Apple’s top line in the long run. The company’s recent partnership with China Mobile (CHL), revamped product line-up and strategic acquisitions will improve its competitive position against the likes of Samsung and Amazon.com (AMZN), going forward.

Nevertheless, falling gross margins and lack of innovation are expected to remain the primary headwinds in the near term.