Analyst: The next 25% of Apple’s growth comes from Services

From a note to clients by Guggenheim’s Robert Cihra that landed in my inbox Wednesday:

iPhones Matter Now, Services Matter Later. We forecast iPhones continuing to drive >70% of Apple’s growth from FY17-20E, actually accelerating from 62% to 66% of revenue mix thanks to their biggest upgrade cycle in 3yrs. But we see Services contributing the next 25% of Apple’s growth, as its second-largest business (we estimate 13% going to 15% of revenue), with the potential to become Apple’s biggest contributor to growth starting FY20E. More meaningfully, we forecast >60% gross margins setting up Services to account for nearly 40% of Apple’s profit growth over the next 3yrs and increasing to 24% of its profit pool from 20% today.

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Reiterate Buy rating and $190 price target.

My take: It’s the end of an era. The iPhone drove Apple’s revenue growth for more than a decade. Barring some new hit product, according to Cihra, Services takes over in 2020.

4 Comments

  1. Gianfranco Pedron said:

    Doesn’t seem to want to let me post a link – hmmm ….

    Oh well, search for ” quickbooks 28 pricing strategies for products and services “

    0
    August 10, 2017
    • Gianfranco Pedron said:

      Ooops! … something seems broken in the comment section … first comment got flushed by the server … or (heaven forbid) the moderator 🙂

      FIrst comment went something like:

      Maybe we’ll finally be able to put the “one trick pony” out to pasture where it will be able to live out the rest of its life in the company of other tired, old, overused memes and eventually get turned into glue, or whatever.

      Tried to post link to O/T article – no joy.

      3
      August 10, 2017
  2. Fred Stein said:

    Nice, Chira has a $190 target and financial model to support it.
    And that category “other products” might have more upside. We can only imagine.

    0
    August 10, 2017

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