Apple ‘Services’ vs. all of Facebook

Which would you guess is bigger?

The chart comparing Apple’s total revenue to Facebook’s is not very interesting.

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In the graph above, Facebook looks like an Apple rounding error. iPhone sales may be slowing but there’s still a lot more money to be made selling hardware to tens of millions than showing ads to 1.6 billion.

A more interesting chart is the one that compares Facebook’s total revenue to Apple’s Services revenue. Here at least the two players are in the same ballpark, and you can compare the arc of their growth curves.

Tim Cook has been encouraging investors to see Apple not just as a hit-driven hardware manufacturer but also as a services company whose 800 million users generate a steadily growing revenue stream.

The growth in Apple’s Services* is steady enough, but Facebook is growing a lot faster. See below:
 

 
*Apple Services with a capital S is a grab-bag of revenue sources that includes iTunes Store, App Store, Mac App Store, TV App Store, iBooks Store and Apple Music, AppleCare, Apple Pay, licensing and, if that weren’t enough, other services.

17 Comments

  1. Peter Kropf said:

    Phillip,

    What accounts for the unusually large jump in rev in Q415, the qtr of the not so great 6s?

    Apple Music mostly?

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    April 30, 2016
  2. John Blackburn said:

    Exponentially? Facebook’s growth looks linear.

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    April 30, 2016
  3. Gianfranco Pedron said:

    Would it be possible to compare the profitability of Facebook vs. Apple services?

    Facebook and Apple both have operating costs, of course, but Apple additionally has developers, artists, distributors and publishers to pay.

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    April 30, 2016
    • There’s some dispute about how profitable Apple Services might be. Credit Suisse’s Kulbinder Garcha earlier this month made a case for 70%. Piper Jaffray’s Gene Munster says it’s closer to 60%. I don’t know how widely accepted those levels are. Apple’s gross margin last quarter was 38.4%. Facebook’s was 28.06%.

      I wrote up the Credit Suisse report: http://ped30.com/2016/04/04/apple-services-margin-shocker/

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      April 30, 2016
      • Gianfranco Pedron said:

        So, according to those margin estimates, Apple is squeezing out roughly twice as much profit as Facebook for every dollar of services revenue. Interesting.

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        April 30, 2016
      • Turley Muller said:

        When iTunes was launched, management forever stated it was a “break-even” business.Revenue was recognized at the purchase value automatically dropping GM to 25-30%. Then, credit processing fees ate up most of the remaining profit margin due to a large share of 99 cents transactions. Apple then began to batch purchases until they reached a certain dollar level (or elapsed time period) before charging CC. In addition, I believe they negotiated lower fees. This, along with the increased price point of $1.29, lifted the ITS into profitability. The App Store is reported on a net basis, thus GM approach 100%. Apple’s formerly reported segment- “software and services” always carried GM 60-80% due to profitability of AppleCare and Apple charging for OS X upgrades & iLife/iWork. The costs associated with those are expensed as they are incurred and rarely capitalized. Therefore, when software finally ships they generate pure profit.

        When Apple shuffled iTunes and services/software into a single reporting segment, I think some analysts, specifically CS, didn’t adjust margin assumptions. The previous 30% is way off. Management said that GM on purchase value is inline with corp GM. Estimating gross profit using 35-40% to then calculate GM on revenue equates to around 70%. .

        The FB margin number of 28% above is net margin. Its GM was about 85%.

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        May 1, 2016
    • Kirk Burgess said:

      Most of a apples service revenue is net of developer/publisher payments. Eg the App Store revenue is just Apple 30% cut – it doesn’t include the 70% developer cut. The actual gross amount of revenue that runs through Apple services is significantly higher.

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      April 30, 2016

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