3 stocks that don’t need Apple to win
One of Apple‘s (NASDAQ: AAPL) the main advantages are iOS, its closed source operating system. This proprietary software gives the business great control over its hardware ecosystem, including the ability to determine which apps can be installed on its devices. And because these apps (and in-app purchases) can only be processed through the App Store, Apple is able to cut down on every transaction (up to 30%).
Of course, that doesn’t suit many businesses. And after Fortnite was started from the App Store, developer Epic Games sued Apple, alleging that its business model constitutes an illegal monopoly. In the end, the court made a split decision: Apple must allow other payment options, which means it can’t force in-app purchases to take place through the App Store, but the App Store. itself does not give Apple monopoly power.
In this Backstage Pass video, which was broadcast September 14, 2021Motley Fool contributors, Jason Hall, Demitri Kalogeropoulos and Trevor Jennewine discuss three actions that should go well no matter what happens with the App Store.
Jason Hall: I think the most interesting thing is talking about some of our best ideas for businesses related to the app economy, whether it’s iOS and the App Store there, or if it’s over on [Alphabet‘s] Google. But companies that should be a winner no matter what happens next with Apple and the App Store. Demitri, do you want to start us here?
Demitri Kalogeropoulos: Of course, yeah. I really like Activision Blizzard (NASDAQ: ATVI) at present. It’s a compelling story that is entering the mobile world more and more in really interesting ways. Traditionally, it has largely been a PC and gaming platform company. Today I just checked out, they have two of the top 10 top grossing games in the Apple iOS store right now and that is candy Crush and Mobile call of duty and none of these were really on the investor radar just a few years ago when Activision bought King Digital and then its recent push into mobile and free-to-play games.
What’s exciting is that Activision has hit something really big with their free-to-play approach and what they’re doing is using things like these free mobile games and their Battle Royale mode to expand the game. world of the game for Call of Duty and it works really well. I reread some stats recently and today gamers are spending four times more money in the Call of Duty ecosystem than they were in 2019, right before the pandemic and it’s even after. that it has slowed down in recent months, most recently since the pandemic boost. This approach has worked very well and Activision is not just relying on it.
They’re going to use it with other brands and they’re doing it with their Diablo franchise. This year I think they are hoping to release a mobile game for that and they probably have dozens of these other brands that they can use the same approach to broaden the base and use it to introduce people to the brand and then carry on. to offer these premium games like the new Call of Duty which will be released in November. This is going to launch the largest pool of committed Call of Duty players in history and that can only help the stock.
Jason Hall: It’s funny too, you go back five or six years ago, Demitri, I know this is a company that you have been following for a long time. But you go back to the time and there were still a lot of questions as to whether anyone could really consistently make money in mobile games and the story has changed completely.
Demitri Kalogeropoulos: It’s also very interesting how much games have changed in terms of profit, how they make money now over the last three years, maybe. Three years ago you paid and spent $ 60 for a Call of Duty game in November, then you’d spend $ 60 more next November, for example. If you had a date you had a chance, you had two weeks, it was a bad Christmas vacation, it could have cost you all your income. But now it’s all software as a service where people sign up for a monthly subscription season, different seasons, and there’s constant content.
One brand, one game last over a year, and as you can see I haven’t really rechecked the list, but there are games from four or five years ago in Activision’s portfolio today. ‘hui who still only have a lot of engagement and a lot of monetization. It’s amazing how much more value games are right now.
Jason Hall: Trevor, I like the direction you’re taking for the business which, frankly, didn’t even occur to me when I thought about this topic idea. Well done.
Trevor Jennevine: Yes. i will go with Limited sea (NYSE: SE). Sea Limited actually started out as a games company, Garena, and Garena’s claim to fame is probably Free fire, which is currently the highest grossing mobile game in Southeast Asia, Latin America and India. It is also, let’s see here, according to Sensor Tower, number three on the list of the most downloaded mobile games in the world and it is number six on the list of the most profitable mobile games in the world. Very popular game. It is available via iOS and Android; and the reason I think this company will do well with or without the App Store is that it performs really well on Google Play, first of all, and the company has two other segments as well.
He uses his game to sometimes serve ads to bring customers to his e-commerce marketplace, which is Shopee, and then his e-commerce marketplace uses SeaMoney, which is a fintech platform. It really is an ecosystem. It’s in the video game space, it’s in the e-commerce space, it’s in the digital payments space, and I think other company apps like Shopee and SeaMoney have so much Gaining popularity in Southeast Asia that – even though things have gone horribly wrong with Apple’s App Store – they would still have a sufficiently large user base. They are still growing so fast that the business would be fine.
Jason Hall: I’m gonna cheat a bit and actually I’m just gonna go with it Netflix (NASDAQ: NFLX) here because I think one of the things you see with companies when they get to a certain level of scale, all of a sudden their leverage situation changes. Although with a lot of these small businesses Apple has all the power, and if you’re a small app developer you like that Apple is going to take care of collecting the money anyway. You can build a business with access to hundreds of millions of people, and then Apple takes care of all the financial aspects of all accounts payable. [laughs] He just arrived and they’re taking care of him. You take that negotiation, but when you get to a scale from someone like Netflix, your leverage and the rates that you might necessarily pay or share changes completely and you have the option of having one-off deals that might be different. . I think this scale is really powerful and really important because Netflix doesn’t need the App Store. It’s great to have, but it’s at a point where its scale is big enough that it doesn’t matter.
I’m going to go with Netflix, and Demitri, I’m just going to refer to the case you did earlier for that. Why is this a winning investment? All trends are in its favor. It has massive data. He’s already spent a ton of money developing content. It’s about monetizing that content. The data tells him what content to develop next. It’s just in such a winning position and the business model, and the cash flow it generates is pretty good.
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