Will Apple Music Beat Spotify?

Apple (AAPL) generates over 60% of its revenue from the sales of iPhones. While iPhones are undoubtedly the most important part, I think investors tend to ignore Apple’s other growth prospects. This may be the primary reason why I think Apple’s stock is down over 15% from its all-time highs. Although the stock has been range bound, I think investors will appreciate Apple’s diversification efforts in the future. Consequently, I expect Apple’s shares to reach new highs in the years to come, making the stock as ideal buy on the pullback.

While Apple has been diversifying a lot, in this article I’ll be focusing on Apple Music as I think it holds massive upside potential for the Cupertino giant.

In just over three months of its launch, Apple Music has become the second largest paid music service in the world.
Spotify, world’s leading music service provider recently reported 20 million paid subscribers followed by Apple Music’s 6.5 million paid customers.

The company recently announced that Apple Music, iTunes Movies, and iBooks are now also available for clients in China. Customers in China love the App store and have made it company’s biggest market in the world for app downloads so I have no doubt that these three services will be well received in the region as well.

Apple Music blends an extensive and broad music library with the help of world-class music specialists who have programmed playlists and radio stations for customers. Apple Music service in China comprises of music from artist including Eason Chan, JJ Lin and G.E.M, as well as international artists. For the first time, with the innovative services provided by the company, customers in China will have access to Apple’s entertainment ecosystem with music, movies and books easily and conveniently.

In the month of August, Apple stated that 11 million users were trailing Apple Music which has expired now. Hence, the company is focused on converting clients that sign up for the trial at roughly 60% rate.

Spotify’s most recent update displayed an improvement to 26.7%, as it successfully converted 25% of its free users into paid users. These robust results may be result of its latest promotion offering 3 months of subscription for $1.

However, Apple is adding users to its Apple Music service at a relatively strong rate as compared to Spotify. Not only did Apple announce its 11 million free trial users in August, the company also added around 8.5 million new trial users - about 3.5 million per month.

If Apple continues to keep up its trial and conversion rates, it could beat Spotify’s paid subscriber list in a year. Apple Music is now only available on iOS devices. So the company has a novel opportunity to expand its service in Android devices.

Conclusion

While Apple is way behind Spotify on the basis of number of clients, I expect this to change in the coming years. Apple’s strategy will unlock the massive potential of this industry and it will become the market leader going forward. Moreover, Apple will find it easier to monetize the users than Spotify. Apple Music can act as a big growth driver and makes the stock a good pick on the small pullback.
Published on Nov 20, 2015
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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