Apple Services: The nitrous in Cupertino’s profit engine

“If you exclude the iPhone, for every $1 in profit Apple generated in selling all other products in 2017 (be it iPads, Macs, Airpods, Beats headphones, Apple TVs, etc.), the company generated almost $2 in profit from Apple Services,” Open Square Capital writes for Seeking Alpha. “Apple earned an $88B gross profit in 2017. Let’s assume that iPhones as a product line generates a 40% gross margin (some analysts put this in the high-30s and others low-40s, so we’ve used 40% as a good average). If so, of the $88B in gross profits, Apple’s iPhones generated about $57B of that, or roughly 2/3rds. For everything else, Apple generated $32B in gross profits.”

“Diving deeper into gross profits, if we assume that Apple’s Services has a margin of about 65-70%, we can see that about 2/3rds of the remaining $32B in gross profits were generated by Apple Services in 2017,” Open Square Capital writes. “Viewed another way, from 2014 to 2017, Apple’s profits from the sale of all other items has now switched positions with Apple Services, and this is using a conservative 65% gross margin assumption.”

“The next time you walk through an Apple store, note to yourself two things. First, how are iPhones selling because that product line generates 2/3rds of Apple’s profits,” Open Square Capital writes. “Second, think to yourself, the second largest growth engine and profit driver for this company starts the minute someone walks out the door with a product. Amazing.”

Read more in the full article here.

MacDailyNews Take: As we wrote back in August:

Apple’s services business is an unstoppable locomotive that, someday, even Mr. Market might fairly value.

Inside Apple’s massive services results – August 9, 2017
Misunderstanding Apple Services – August 7, 2017
Dispelling the Apple Services myth – May 3, 2017
Apple’s Services business: $7 billion in revenue last quarter alone – May 3, 2017
Apple’s Services (App Store, Apple Music, Apple Pay) business is an unstoppable juggernaut that’s still just gathering strength – May 3, 2017

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