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Smartphones and tablets are becoming increasingly widespread, and with their emergence has come a new market for apps, computer programs that are designed to operate on these devices.
Apps span an array of topics and uses, from photography and videos to productivity to mobile games. These variances have created an enormous range of opportunities for ambitious startups, established tech companies and savvy investors seeking to capitalize upon the exciting potential of app investing.
How app investing works
The majority of mobile apps are sent out through two main distribution platforms: the App Store, which caters to Apple (NASDAQ:AAPL) devices, and Google Play, which is aimed at Android devices. Both of these platforms host a dizzying array of apps for download, with 1.4 million available in the App Store and 1.5 million in Google Play. Though they have significantly fewer apps available for download, the Amazon App Store, Windows Phone Store and Blackberry World also distribute apps.
As mentioned, the mobile app market is attracting both large and small companies that see the potential to make it big in this growing field. Major players include King Digital Entertainment (NYSE:KING), which has 185 apps on the market, and is responsible for creating and producing popular apps like Candy Crush Saga, Farm Heroes Saga and Pet Rescue Saga.
Many smaller companies involved in the space have been encouraged by the fact that app startups have the potential to rocket quickly to success. For instance, Kevin Systrom and Mike Krieger saw great success with Instagram, which took just four months to reach 2 million users after its launch in the App Store in October 2010; it was then acquired by Facebook (NASDAQ:FB) for $1 billion in April 2012
Booming market for app investing
The app market clearly has great potential, and is currently booming. In fact, in some cases investors are desperate to get a piece of the pie. That was particularly evident in May 2015, when Snapchat, a photograph-sharing app that allows user to share images for pre-specified amounts of time, revealed that it raised $537 million in new financing.
What was unusual about the news was that investors accepted common stock instead of preferred shares — essentially, they were so eager to finance Snapchat that they were willing to forego voting rights, downside protection and the right to be paid before regular shareholders. Notably, Alibaba Group Holding (NYSE:BABA), a Chinese ecommerce company that holds the record for the world’s largest IPO, was one of the companies to invest, contributing $200 million.
The future of app investing
All of that said, there is some concern that the app market cannot sustain itself at the current pace. Midway through 2015, the tech-focused NASDAQ Composite index (INDEXNASDAQ:.IXIC) reached an all-time high (even surpassing its peaking during the 2000 dot-com bubble), while at the same time achieving one of the lowest levels of valuation confidence.
In other words, analysts fear that current equity values are not sustainable, and yet the app market continues to expand rapidly. But while that could mean that the space is on the precipice of a downturn, it’s hard to argue against the market’s potential. After all, the next Instagram, Snapchat or even Facebook could be developing right around the corner.