Where Apple Services would fit in the Fortune 100

Sometimes it helps to see these things in context.

From the transcript of Apple’s Q3 2017 earnings call:

Tim Cook: Services revenue hit an all-time quarterly record of $7.3 billion, representing 22% growth over last year. We continue to see great performance all around the world, with double-digit growth in each of our geographic segments. Over the last 12 months, our Services business has become the size of a Fortune 100 company, a milestone we’ve reached even sooner than we had expected.

Apple’s Services business (App Store, iTunes, Apple Music, Apple Pay, iCloud, etc.) is Apple’s Breakthrough Product, according to the Wall Street Journal, which compared the segment’s revenue growth rate since 2015 with those of the Mac, iPad and iPhone and produced this striking graphic:

WSJ Services

Click to enlarge. Not seeing the fever chart? Try the website.

So, is Apple still doomed?

10 Comments

  1. David Drinkwater said:

    To me, the Services segment says that Apple product owners are *using* their products. They may be new, they may be second-hand, but they are heavily used.

    PS Bigger than Facebook. *snickers*

    1
    August 4, 2017
  2. Robert Harris said:

    At double digit growth will be fun to see where they are in 5 years.

    0
    August 4, 2017
    • David Drinkwater said:

      If they can sustain the 20% Y-o-Y growth RPL suggests below, that will be a quarter billion dollar business in 5 years.

      0
      August 4, 2017
      • Stephen Young said:

        @David- I do not understand your statement. First if apple were to grow services revenue @ 20% YoY then it should grow to ~$70B from $28B in the next 5 years.What I read below from RPL was a statement concerning the impact of AR on services is nice but the real impact is on the platform and the eco-system is even better. Did I miss something?

        Respectfully,
        Steve

        0
        August 4, 2017
        • David Drinkwater said:

          You got me. Something fogged my math mirrors. For some reason, as I was writing, I recalled an incorrect ~$100 million annual business.

          Totally my mistake. I have no explanation other than mental error.

          0
          August 4, 2017
          • Stephen Young said:

            No problem happens to me more than I like. Cheers!

            0
            August 5, 2017
  3. Robert Paul Leitao said:

    The Services revenue segment is now Apple’s second largest segment and is on track for about 20% revenue growth this fiscal year.

    For the fiscal year ending in late September, Apple will sell over 215 million iPhones, in the range of 43 million iPads and more than 18 million Macs. Combined, that’s over 275 million units of the latest products all able to run the newest Apple operating systems.

    With forecasts suggesting more than 250 million iPhones will be sold next fiscal year, the company will sell in the range of 475 million iPhones over a two-year period. The vast majority of these iPhones will handily support AR apps enabling Apple to advance the eco-system far beyond the limits of any competing platform.

    Services revenue is a constituent outcome of growth in the the company’s global user base and the advanced technologies the company is bringing to market in each of its product lines.

    Not only will Services revenue rise in FY2018 in the range of a 20% annual growth rate, Apple is continuing to widen the company’s economic moat and through technology advances and a robust developer environment creating barriers for consumers and enterprises to exit the eco-system while enticing users of any competing platform to switch to Apple products.

    The Services revenue segment ranking among the Fortune 100 companies is good. What rising Services revenue represents for Apple’s eco-system and the company’s twin platforms is even better.

    2
    August 4, 2017
    • Mark Visnic said:

      “What rising Services revenue represents for Apple’s eco-system and the company’s twin platforms is even better.”

      I couldn’t agree more Robert! Accelerating services revenue is indicating very sticky installed base growth and increasingly clearer high quality recurring revenue, multiple expanding share price. Think Coca Cola circa 1990.

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      August 5, 2017
  4. Mark Visnic said:

    The acceleration in the services revenue growth rate likely was underappreciated last week. It is the key metric that leads to a market multiple closer to MSFT and GOOG, ie 20 to 20+.

    What I gather largely remains misunderstood is services rev. growth is a function of the growth of the installed base x the strength of the ecosystem as influenced by the breadth and attractiveness of new apps/services/features (eg aug real).

    Apparently, the installed base grew in the traditionally off-season FY Q3 and Q2. It likely will leap forward in Q1 FY 2018!

    I look forward to greater recognition of how the incremental growth of the installed base contributes to geometric growth of services revenue leading to a 20 multiple and a $240 share price on Apple in early 2019.

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    August 5, 2017
  5. David Emery said:

    A couple friends of mine are in 2017 much less “stuck” to the Apple ecosystem. They’re using content providers that are cross-platform, or are using apps that are cross-platform, or have moved to PCs where the total system cost (hardware plus application software) is significantly less than their prior Macs.

    So I think a note of caution is appropriate. It’s not that I doubt Apple’s ability to grow Services. Rather, it’s Apple will need to continue to come up with compelling things to keep people in their walled garden of Services. (Maybe AR is that thing.)

    0
    August 5, 2017

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