A Forrester Research Inc. report claims sales at Apple's iTunes store fell off significantly during the first half of 2006. Monthly iTunes transactions declined 58%, while the average dollar-amount per purchase declined 17%, leading to a 65% overall drop in monthly iTunes revenue. Forrester analyst Josh Bernoff says it's too soon to tell whether the decline is seasonal or if demand for digital music is tailing off. He sees no serious implications for Apple, which continues to make most of its profits selling iPods, computers and other gadgets. While the report sent Apple shares down $2.61 (2.9%) to $86.14 in trading yesterday, the company and several analysts questioned its validity. Apple spokeswoman Natalie Kerris said, "The conclusion that iTunes sales are slowing is simply incorrect," adding that iTunes sales are 6% of all music sold in the U.S., making it the fourth largest music retailer. Pacific Crest analyst Steve Lidberg said in a note yesterday that he doesn't see a slowdown in digital music sales, citing data that shows weekly digital album sales have more than doubled. Advertising analyst Carl Howe concluded based on independent analysis that iTunes sales growth continues to improve dramatically, with a billion songs sold over the last year and songs sold per iPod nearly doubling over the last three years. During an October conference call, Apple Chief Financial Officer Peter Oppenheimer told analysts, "Our view continues to be that selling music and TV shows and now movies helps us to sell iPods and accessories."
• Sources: Forrester's report, Reuters, TheStreet, Bloomberg. Conference call transcripts: Apple F4Q06 (Qtr End 9/30/06)
• Related commentary: High School Math 101: iTunes Sales Not Collapsing, Apple Stock Slips: iTunes Slowdown? iPod Peaking?, Survey Shows There May Be Hope for Microsoft's Zune After All, No Growth In Digital Music Sales?
• Potentially impacted stocks and ETFs: Apple (AAPL). Competitors: Microsoft (MSFT), SanDisk (SNDK).
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