Apple’s services business saw massive 60% profit margins in 2015, more growth expected

“Pulling data from Apple’s December 2015 earnings report, investment bank Piper Jaffray estimates gross margins on the company’s rarely discussed services business could be above 60 percent,” Mikey Campbell reports for AppleInsider. “And that figure is expected to grow.”

“In his latest report to investors, obtained by AppleInsider on Tuesday, analyst Gene Munster focuses on Apple services, which includes iTunes, the various App Stores, Apple Music, Apple Pay, Apple Care and miscellaneous licensing revenue,” Campbell reports. “Munster estimates Apple Music will generate $1.7 billion in revenue on 13 million subscribers over the course of 2016, a figure expected to increase to $2.6 billion on 20 million subscribers next year.”

“Looking ahead, Munster sees services accounting for 10 percent of Apple’s total revenue for calendar years 2016 and 2017, a modest jump from 9 percent in 2015,” Campbell reports. “The investment bank is increasing services revenue estimates by 1 percent for 2016 and 4 percent for 2017, shifting expected year-over-year growth to 14 percent and 12 percent, respectively.”

Read more in the full article here.

MacDailyNews Take: Apple’s services business – the uber-sticky ecosystem – is the most overlooked segment of Apple’s insanely efficient profit-generating machine. Wall Street wants growth? Well, there it is, right in front of their faces. Hardware unit sales aren’t where the action is – for proof of that just look at Windows PCs or Android.

SEE ALSO:
Credit Suisse: Apple’s underappreciated services business could be growth engine – April 4, 2016
Apple highlights services in search of Wall Street’s love – January 26, 2016
Apple reaps $18.4 billion quarterly profit, the largest ever recorded by a single public corporation – January 26, 2016
Apple beats on earnings; sets all-time records for revenue, net income, and EPS – January 26, 2016
MacDailyNews presents live notes from Apple’s Q116 Conference Call – January 26, 2016
Apple beats Street with all-time record quarterly earnings – January 26, 2016

5 Comments

  1. I don’t know about you, but no one is overlooking the service portion of Apple’s business, and it has been widely reported in the financial press.

    Hyperbole much?

    1. The iPhone SE – starting price in dollars is $399. The iPhone 5c introduction starting price in 2014 was $549. The iPhone SE also contains more recent components than the 5c did at release, making it even a greater value.

  2. Apple sold many more iPhones in FY2015 compared to FY2014. Also, many more consumers went with yearly upgrade plans compared to previous years. I’m calculating Apple will increase their base by a net 70-100 million users in FY2016, and they could increase their base another 100-150 million in FY2017. These new customers will substantially increase services and future purchases revenue.

    In my old service business we valued a customer at $25K over their lifetime, and, as a result, it was extremely important for us to have exemplary customer service. Apple appears to have this same dedication to keeping the customer happy.

    It perplexes me that the market doesn’t value Apple based on the lifetime revenue of their customers, but instead values Apple like some fly-by-night outfit, or a one-hit wonder hula hoop. Apple is a lifestyle choice, and has less churn than Mickey Mouse.

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