How Apple could double its services revenues by 2022

“Apple’s Services business has grown at a rate of over 20% over the last three years, eclipsing the iPad and Mac to become the company’s second-largest business segment with revenues of about $37 billion last year,” Trefis Team and Great Speculations write for Forbes.

“In this note, we take a look at how Apple could potentially double its services revenues – which stood at about $37 billion last year – by fiscal 2022,” Trefis Team and Great Speculations write. “The App Store is likely the biggest driver of Apple’s Services revenue, and we estimate that its revenues stood at about $13.5 billion in fiscal 2018… Although Apple’s iPhone sales have been largely stagnant, the installed base is growing at a relatively healthy pace… Bank Of America Merrill Lynch estimates that the iPhone installed base grew at a 15% CAGR over the last two years. If we assume that the user base grows to 1.3 billion by 2022, with paid app installs per user rising to 11, this would translate into revenues of over $21 billion, assuming the price per app and Apple’s take rate remain constant.”

“Apple’s Music business has seen solid growth, with the paying subscriber base rising from 30 million in September 2017 to 50 million in May 2018. We estimate that the figure stood at about 55 million at the end of FY’18,” Trefis Team and Great Speculations write. “If we assume that the average user base number grows to about 75 million users by 2022, a CAGR of about 15%, with monthly ARPU rising to $8, it could translate into revenues of close to $5.5 billion.”

Much more, including iCloud, licensing, fees, other services, the upcoming streaming video offering, and more in the full article here.

MacDailyNews Note: Here’s Apple CFO Luca Maestri describing the changes to financing reporting from Apple that we’ll see going forward (from Apple’s Q418 conference call):

I’d like to describe a number of changes in our financial reporting that we’re implementing as we enter our new fiscal year. First, given the increasing importance of our services business and in order to provide additional transparency to our financial results, we will start reporting revenue as well as cost of sales for both total products and total services beginning this December quarter.

Second, also beginning in this December quarter, we’re adopting the FASB’s new standard for revenue recognition. This will not result in any change to our total revenue, but it will impact the way we report the classification of revenue between products and services. In particular, the revenue corresponding to the amortization of the deferred value of bundled services such as Maps, Siri, and free iCloud services was previously reported in product revenue. After adopting the new standard, this revenue will now be reported in services revenue. The change in classification between products and services will also apply to the costs that are associated with the delivery of such bundled services.

After we file our 10-K, we will post a schedule to our Investor Relations website showing the reclassification of fiscal 2018 revenue from products to services in connection with the adoption of the new standard. The size of this reclassification amounts to less than 1% of total company revenue. And for clarity, this reclassification was not contemplated in our previously stated goal of doubling our fiscal 2016 services revenue by 2020. That goal remains unchanged and excludes the revenue that is now shifting from products to services over that timeframe.

Third, starting with the December quarter, we will no longer be providing unit sales data for iPhone, iPad and Mac. As we have stated many times, our objective is to make great products and services that enrich people’s lives, and to provide an unparalleled customer experience so that our users are highly satisfied, loyal and engaged.

As we accomplish these objectives, strong financial results follow. As demonstrated by our financial performance in recent years, the number of units sold in any 90-day period is not necessarily representative of the underlying strength of our business. Furthermore, a unit of sale is less relevant for us today than it was in the past, given the breadth of our portfolio and the wider sales price dispersion within any given product line.

Fourth, starting with the December quarter, we will be renaming the other products category to wearables, home, and accessories to provide a more accurate description of the items that are included in this product category.

SEE ALSO:
Jefferies: Apple stock will rally thanks to surge in services revenue – December 19, 2018
Here’s what’s driving Apple’s burgeoning services business – November 29, 2018
Morgan Stanley projects Apple’s Services revenue to grow to $100 billion by 2023 – November 29, 2018
Jefferies: Buy Apple stock for ‘massive’ services potential built on ‘stable iPhone business’ – November 2, 2018
Apple’s killer services business will be a profit monster within 10 years – July 16, 2018
Morgan Stanley: Buy Apple shares on the ‘emerging power’ of its services – May 24, 2018
Apple as a service: Services offer growth, visibility, and profitability – May 15, 2018
AAPL’s paradigm shift – May 11, 2018
Apple Services: The nitrous in Cupertino’s profit engine – November 27, 2017
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

2 Comments

  1. I definitely wouldn’t count on Wall Street valuing Apple anywhere near Netflix even if Apple had terrific services. It may take a long time for big investors to stop wanting to count iPhone unit sales every quarter. I don’t quite understand why unit sales are more important than revenue and profits. As long as revenue and profits grow, what difference does iPhone unit sales numbers make? Actually, subscriber count should matter more, especially if those services can be watched on Apple’s entire product line.

    Anyway, there’s no logical reason why AAPL stock is now only worth $156 a share as there’s no hard proof iPhone sales have declined 30%.

    1. You only have to listen to some of the idiots on here going on about stagnating iPhone sales as a death knell for the company to get the gist of how a lot of these analysts think till proven to be wrong. Few seem to understand that with the long life of Apple products even a stagnant sales figure means as this article very logically states, a very healthy growth in services profits. The important area for Apple now is to make sure that they expand the scope of those services which will create further growth and have the potential like the new streaming services to come on line next year to encourage new product sales so that one side of the business influences the success of the other. Apple should perhaps have stopped unit sale figures a couple years ago but a usual were late to get on board. That latter is the one aspect of the company that is and remains a concern under Cook. It is in danger of becoming boring… like Sony.

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