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Fri, 15 Dec 2006 iTunes sales up 95% in 2006 – analyst

Analyst points to 95 per cent year-on-year growth in iTunes sales in 2006

Jonny Evans

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While iTunes Store sales aren't slowing down, investors needn't worry even if they were – for Apple, revenue comes from the iPod, and iTunes software's main function is as a user interface for the player, an analyst said last night.

American Technology Research analyst, Shaw Wu, said: "iTunes software is what gives an iPod its unique user interface and ease of use, in particular when syncing with a PC and/or Mac, still arguably the best platforms for productivity and to manage content libraries."

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The analyst observes: "Recently, there has been concern about declining iTunes store sales and the negative impact on Apple. We believe these concerns are overblown and we would take advantage of these misplaced fears to add to Apple positions," Wu states. The analyst holds a 'Buy' rating on Apple stock with a $99 price target.

Wu warned investors that recent claims of iTunes sales slowing down are incorrect, saying: "Our analysis shows strong growth through 2005 and 2006. Specifically, we estimate that music downloads in January 2005 were averaging about 1.28 million per day, up from 150,000 per day in December 2003. Now, from the latest data in September for 2006, we estimate that music downloads are around 2.5 million per day. That translates to up 95% year-on-year."

The analyst also looked at the other music-related products that make up Apple's numbers from its overall music initiatives, pointing out that over the last eight quarters, growth rates have ranged between 71 per cent to 276 per cent, year-on-year. The iTunes software portion is the more critical and underappreciated part of the Apple story than the much talked about iTunes store, Wu adds.

While some reports claim most iPod owners only carry around 20 tracks downloaded from iTunes, this doesn't mean they aren't buying music. The analyst points out that most music is ripped from existing CD collections

"We believe with Leopard launching in the first half of 2007, Mac momentum, particularly with switchers, will likely continue and potentially accelerate to the 40 per cent range with better Windows compatibility," the analyst states.

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