What is App Investing?

With the advent of smartphones and tablet computers emerged a new market for apps, or computer programs designed to operate on these devices. App investing has exploded alongside the increased prevalence of smart mobile devices. From photography and videos to productivity to mobile games, apps span an immense breadth of topics, interests, and uses. This creates an enormous range of opportunities for ambitious start-ups, established tech companies, and savvy investors seeking to capitalize upon the exciting potential in app investing.

How it works

The majority of mobile apps are distributed through two main distribution platforms: the App Store, for Apple devices, and Google Play, for 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. With significantly less apps available for download, Amazon Appstore, Windows Phone Store and Blackberry World also offer app distribution platforms.
The mobile application market attracts many startup companies, who see the potential to make it big within this growing field. Stories like Kevin Systrom and Mike Krieger’s success with Instagram, which took just four months to reach two million users after it’s launch in the App Store in October 2010, before being acquired by Facebook for $1 billion in April 2012, motivate ambitious entrepreneurs and individuals interested in app investing.
However, many successful apps on the market are created and produced by major app companies. For instance, with over 185 apps available on the market, King Digital Entertainment is responsible for creating and producing the megahits Candy Crush Saga, Farm Heroes Saga and Pet Rescue Saga. Therefore, app investing can be directed towards risky startup companies with the possibility of huge payoff, or more established companies which have become major successes in the mobile applications market.

Booming market

Currently, the app market is booming. Take Snapchat, for example, the photograph sharing app which allows users to share images for prespecified amounts of time. In May, the company revealed that it raised $537 million in new financing, valuing the company at $16 billion.
What is unusual about this round of financing is that investors are accepting common stock instead of preferred shares. Essentially, this suggests that investors are so eager to finance Snapchat that they are willing to forego the voting rights, downside protection, and the right to be paid before regular shareholders, which would typically accompany this stage of investment. Alibaba Group Holding Ltd., a Chinese ecommerce company which holds the record for the world’s largest public offering, is one of the companies to invest in this round, contributing $200 million.
However, there is some concern that the app market cannot sustain itself at this pace. The tech-focused Nasdaq Composite index recently 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 sustainable, and yet the market continues to expand rapidly.
App investing, always a risky venture, may be on the precipice of a downturn. Even Evan Spiegel, the CEO of Snapchat, anticipates a market downturn on the horizon. Nonetheless, there remains much potential in this broad, exciting, entrepreneurial market, where the next Instagram or Snapchat may be developing right around the corner.