Why services may be the key to Apple’s comeback

“Apple’s post-earnings sell-off was no surprise. For the first time in 13 years, revenue contracted, with iPhone sales falling sharply,” Jeremy Bowman writes for The Motley Fool. “However, lost in the chatter was the key to what could be renewed growth down the road: The company’s services segment grew 20% to $6 billion in sales in the quarter, as CEO Tim Cook touted the ‘incredible strength of the Apple ecosystem and our growing base of over 1 billion active devices.'”

“The category includes steady earners such as Apple Pay, Apple Music, App store sales, subscriptions, and others,” Bowman writes. “Essentially, they’re all the sales Apple makes without selling an actual device. That’s why Cook insists that the company’s ecosystem of more than 1 billion active devices is so valuable.”

“This is where the power of services comes in. They provide a consistent revenue stream from Apple’s installed base of over 1 billion devices. Services are the blade to the iPhone’s razor, and like the razor blade, Apple’s services carry significantly higher margins than its devices do,” Bowman writes. “CFO Maestri would not provide a number on the recent call, but said that ‘it’s very clear that [the profitability] is significantly higher than company average.'”

Much more in the full article here.

MacDailyNews Take: People are going to be gasping over Apple’s already gasp-worthy services revenue before too long.

SEE ALSO:
Apple now makes more money from services than by selling Macs – May 2, 2016
Apple services now reach 124 million U.S. adults as user base expands – April 21, 2016
Apple’s services business saw massive 60% profit margins in 2015, more growth expected – April 20, 2016
75 percent of teens say their next phone will be an iPhone – April 13, 2016
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

7 Comments

  1. “With a P/E of 10 and a net cash hoard of $150 billion, Apple is being valued as a no-growth company. ”

    I suppose as Apple users shift to online backup, and storing more and more photos, and moving to apps that use iCloud drive, they might add more storage, but I wouldn’t expect a major growth in storage. iCloud doesn’t reach anyone except OS X and iOS users either, and there’s better competition. Much better.

    1. Spot on. I don’t use any paid-for services from Apple. iCloud is hopeless for project file storage with no support at all for older file formats and no way to keep everything for a project together. In any case, Pages and Numbers are useless for real work so that means Office.

      Internet radio is free. I have lots of CDs and Iisten mostly to classical, which Apple has never done well.

      Very few Americsn films today are worth watching, less are worth paying to watch. I watch free to air TV here in Sydney.

      If I move back to Windows I will likely leave the Apple ecosystem altogether. After 15 years on Mac I am pretty sure my next computer will be Wintel: I actually use my computer for real work and it’s much harder to do real work on a Mac these days and impossible without Microsoft software.

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