Apple services segment faces margin, competitive challenges

“Apple Inc is betting on services such as app downloads and music subscriptions to help drive growth as the cell phone market matures, but the company faces tough competitors and potentially low profit margins in some of its target areas,” Stephen Nellis reports for Reuters. “A 31 percent increase in services revenue to $9.2 billion was a bright spot in earnings reported on Tuesday, lifting overall gross margins as well as sales, the company said. Apple subscribers, who include customers paying for third-party apps on iPhones, rose 100 million in the last year to 270 million. But profitability varies widely among service offerings, and some businesses appear to have lower profit margins than the 38.3 percent company-wide figure Apple reported.”

“The App Store and iCloud storage are similar to high-margin software businesses while entertainment, such as Apple Music and a nascent video business, are similar to lower-margin media businesses,” Nellis reports. “‘Some of these services are for sure going to have much lower margins’ than Apple’s core hardware business, said Bob O’Donnell of TECHnalysis Research.”

“The App Store is the largest component of the services segment, [CFO Luca] Maestri told Reuters. Apple receives 30 percent of the price of one-time app purchases and purchases made within apps, such as items in video games, and 15 percent of App Store subscriptions to services like Netflix Inc after a year. That is a high-margin business, but the company has been in it for a decade,” Nellis reports. “Entertainment, though, is a tougher business where Apple may have to spend substantially to compete with entrenched rivals. ‘Look at what Netflix and Amazon are doing. Those guys are spending hundreds of millions if not billions of dollars on content,’ O’Donnell said.”

Read more in the full article here.

MacDailyNews Take: Oh, no, woe is Apple! How will the company ever compete? Where will Cupertino find hundreds of millions if not billions of dollars? All is lost.

Apple bought back a record $23.5 billion shares on the cheap in Q1 as Wall Street naybobs nattered negativity – May 3, 2018
Apple plows U.S. tax cuts into record share buybacks – May 2, 2018
Apple beats Street with best Q2 ever – May 1, 2018
Apple investor focus shifts to capital return plans – March 9, 2018


  1. I stopped reading when it became clear it was an article from Reuters.

    Reuters never overlook any opportunity to publish a negative spin on anything to do with Apple and then that sory gets repeated all over the world as though it’s a factual assessment.

  2. I would think Apple is in a better position to spend more money than both Amazon and Netflix combined. I find it rather strange that Apple is always said to run into barriers that never even slow down any of the FANG stocks. AppleMusic seems to be doing rather well competing against a fully-entrenched Spotify. It’s just crazy to think Apple can’t compete against Netflix. There’s no way Netflix could afford to start losing subscribers.

    I’d sure like to know where Netflix’s huge moat is that Wall Street thinks is so indestructible. I’m certain a rival business with more money could come along and gradually chip away at Netflix’s monthly subscriber business model. Does Wall Street honestly believe Netflix’s customer base is that loyal that they wouldn’t defect to another service?

    1. Certainly Apple has more money than anyone to spend. That is why loyal Apple customers have been treated to
      – the worst value in cloud storage
      – 5+ year old Macs at outrageous prices
      – abandoned software and hardware every year
      – horrible laptop keyboards
      – delayed product releases
      – buggy software that doesn’t fix issues for many months after error reports
      – inconsistent design and product planning such as no way to charge a lightning iOS device from a new usb-c laptop. Wtf!

      And on it goes. Inept clueless bloated corporation now.

  3. Typical FUD! Oh no, Apple will have to compete to rake in the 9 billion and increasing that it does so effortlessly, due to its huge ecosystem. Another idiot trying to gin down the price of AAPL, two days after they analyst community proved what useless turds they are.

  4. That didn’t take long. Only two days since reporting record Services revenue and growth, here comes the first “Apple’s in trouble” hit piece.

    Not surprisingly it came from one of the “iPhone X sales are weak” prophets.

    No matter how badly they are (should be) embarrassed when Apple reports results, they can’t resist writing “Apple is doomed” stories.

  5. They, Reuters in particular, really have no shame, within days of being humiliated over their fake numbers they are at it again with their made up tales of alternative woe based on no more than further readings of the tealeaves. I mean seriously how can you get away with the argument that there are worries because some services will be less earnings rich than others indeed the fact that some profit margins that fall below the 38% reported are as such some kind of a problem. In what world are all margins going to be exactly the same which simply proves the point that they simply exploit the lack of the impossible as an opportunity to raise all manner of potential weaknesses. Talk about desperate. Fact is each element is part of the self perpetuating whole in the overall platform, some eSrn as good as nothing yet show their worth in encouraging hardware sales while others are cash cows that help keep users in the Eco system. Most combine both these factors to a greater of lesser level indeed and thus are extremely beneficial to the platform. Anyone beyond Reuters with half a brain understands this rationale.

  6. “iPhone X is a Flop!”

    “Wait. What? iPhone X is a smash hit? iPhone revenues are up 15%YOY? And services are growing at 30%YOY?”

    “Services are doomed! Because, competition!”

    Sleazy Wall Street anal-ists…

  7. All of the sudden profitability is important? I thought it was all about number of subscriptions and revenue.

    I fear that Apple will never be held to the same (low) standard as Amazon or Netflix.

  8. Everybody it seems wants to scratch your wallet- every damn month.

    I have no problem paying for HBO as it is ad free and I have no problem paying for the Financial Times as it covers stuff otherwise not seen in most media. I pay Amazon every month for Prime as the savings on shipping make it worthwhile.

    But everybody in Silicon Valley wants to feed you a diet of commercials AND charge you a fee. This day Bloomberg Digital went behind a $35 a month paywall- from $0. AutoDesk, Adobe and Microsoft want to rent you software. Others want to rent you VPN service or AV definitions or firewall services. Tim Cook wants you to get on the upgrade treadmill with the iPhone where you will pay monthly until the day you die- same for iCloud and Apple Music.

    So where exactly does it all end?

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.