With Apple TV+ about to arrive and lots of love already being shown for Apple Arcade, Apple’s services business now seems certain to exceed CEO Tim Cook’s 2017 $50-billion-per-year promise.
What did Cook say?
Back in early 2017, Cook made some pretty aggressive promises around how his company planned to build its services business: “Our goal is to double the size of the services business in the next four years,” he said at the time.
He was announcing the results of the company’s December quarter, in which services generated $7.17 billion. More recently, Apple generated $12.5 billion in services in its just-passed September quarter (announced here) for a 2019 total of $46.3 billion in services alone.
Apple’s annual services income 2016-2019
- 2016: $24.3B
- 2017: $29.97B
- 2018: $37.1B
- 2019: $46.3B (up roughly 25% year over year).
Apple has more or less doubled its services income since 2016, a level of growth most companies (and certainly this impecunious individual) can only ever dream of.
To put this into perspective, Apple’s new Arcade service was only available for a few days during its most recent quarter (on a free trial basis), while the company’s Next Big Thing, Apple TV+, remains unavailable so far.
The bottom line seems to be that Apple’s smartphone sales seem to be stabilizing and its wearables business has also grown to become a $10 billion industry in its own right.
New business offerings
Apple’s new services seem destined to generate significant income. (Anecdotally, I have to say that I tried Arcade for a game called Oceanhorn 2 and am now becoming hooked on building motorways.)
At $4.99 a month, Arcade has proved itself sticky enough for me – and I’m not the only one with that experience. Engadget calls it “too cheap to quit,” and I agree.
Available on multiple platforms, Apple TV+ is likely to generate similar levels of early interest, during which the company will need to impress viewers (or not) with the quality of the its content.
Apple Pay transactions, meanwhile, are growing four times faster than PayPal, even as Apple prepares to offer 0% financing on new iPhones purchased using an Apple Card as it moves inevitably (and inexorably) toward offering Apple hardware as a service.
These new services will likely drive further revenue growth across Apple’s 2020 fiscal year, and this growth is likely to soon exceed Cook’s $50 billion/year services revenue target. (As some predicted).
We still have no sight yet of other service plays, such as consumer-focused AR gaming and immersive multimedia experiences, or the dragonish mist that is Apple Car.
Hello, Apple’s halo
Why is the company able to achieve this? Needham & Co. put it best in 2017:
“AAPL is an arms dealer that dominates the wealthiest segment of this rapidly growing consumer market,” the analysts said.
“Our research suggests that iOS platform churn is only about 12% annually, suggesting fewer competitive pressures, higher pricing power, more predictable revenue streams, and a halo effect that drives sister-device sales and higher ancillary revenue than AAPL’s current share price implies.”
That halo effect is precisely the same energy that enabled Apple to grow iPhone and Mac sales on the success of the iPod – itself created on the success of the iMac.
The AirPods Pro queues Apple’s PR teams are making sure we see outside Apple’s retail outlets this week suggest that halo is now migrating to the hit wearable products of the future, alongside the swell in services designed to support the above.
Meeting and exceeding targets
The bottom line for many investors must surely be that if Apple maintains current momentum its services segment seems set to be far bigger than the $50 billion per year business CEO Cook promised to build back in early 2017.
Perhaps one day his critics will accept this?
Copyright © 2019 IDG Communications, Inc.