Services Are Carrying Apple, Inc. Growth As iPhone Engine Slows

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Services Are Carrying Apple, Inc. Growth As iPhone Engine Slows
Photo by Szilveszter Farkas

Apple is highly dependent on iPhone sales for growth and profits, but the device is not selling as expected and this has negatively impacted its growth. Thus, the iPhone maker is now focusing on building an array of services like the App Store, iCloud and Apple Music to help make up for the revenue loss, and its efforts are bearing fruit.

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Services revenue becoming important for Apple

This quarter, Apple surprised Wall Street with better-than-expected numbers. Apple sold 78.3 million iPhones – its main growth engine — in the holiday quarter, whereas Wall Street expected it to sell 76.3 million units. Last year, it sold 74.8 million iPhones. However, the company’s fastest-growing business was its services segment. In the coming years, it might become one of the most powerful and profitable businesses.

“Looking at the return to growth from last quarter, it also seems apparent that Apple’s slight jump from the first quarter last year was significantly buoyed by its ever-growing services revenue,” says TechCrunch.

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In the first quarter, a year-over-year growth of 18% was seen in Apple’s services revenue bringing it to $7.2 billion. Last year, it was around $6.1 billion. It seems that the services revenue was responsible for a significant chunk of the differential revenue that Apple made over the same quarter last year.

Aims to double revenue next by 2020

During the earnings call, CEO Tim Cook said, “It was our best quarter ever for services. App Store customers broke all-time records in the holiday quarter, including $3 billion in purchases in December alone, making it the App Store’s single best month ever.”

The developer community, which is credited with Apple’s sustained software success, earned $60 billion, said Cook. Cook also said the transaction volume for Apple Pay went up 500% year over year, as the number of users tripled over the past year. Now Cook aims to double the amount of revenue from the services segment by the end of 2020.

“We feel great about this momentum, and our goal is to double the size of the services business in the next four years,” Cook said.

It’s a crucial year for Apple; it either has to come up with a breakout innovation on the smartphone to boost its growth or diversify its revenue sources beyond phones and tablets.

On Tuesday, Apple shares closed down 2.23% at $121.35. Year to date, the stock is up almost 5%, while in the last year, it is up almost 25%.

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Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com
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