Apple’s lucrative, growing Services business remains a major catalyst

Apple shares have soared over the past year, rising more than 70%. This marked rise is partly due to investors’ growing appreciation for the tech giant’s lucrative services business, which eases the company’s reliance on hardware sales.

Daniel Sparks for The Motley Fool:

Apple’s services business hasn’t disappointed in 2020. It has consistently been growing by double-digit rates year over year. Moreover, the key segment saw accelerated growth in fiscal Q4.

In Apple’s fiscal fourth quarter of 2020, services revenue rose 16% year over year to a record $14.5 billion. This was notably a slight acceleration from 15% growth in fiscal Q3. Further, total services revenue increased by more than $1 billion sequentially.

Showing why investors love the tech company’s services segment so much, its gross profit margin was 67% during the period — far ahead of the 30% gross profit margin its products segment achieved. And the services business is lucrative: It generated nearly 40% of Apple’s fiscal Q4 gross profit despite accounting for 22% of revenue.

The primary reason investors can expect more robust growth from services is that the company only recently started doubling down on the segment by launching a handful of new services. It was just last year when Apple unveiled Apple News+, Apple Card, Apple Arcade, and Apple TV+. More recently, the company announced a bundled option for its services called Apple One and a Peloton-like fitness subscription called Fitness+.

MacDailyNews Take: We bet Apple is seeing a shockingly good reception to Apple One bundles of Services, especially the $29.95 per month Premier plan which offers Apple Music, Apple TV+, Apple Arcade, Apple News+, Apple Fitness+, and iCloud storage that can be shared among up to six family members as it offers significant savings of over $25 per month.