In a 33-page deep dive into Apple’s subscription services, analyst Amit Daryanani estimates that average revenue per user is now growing nearly 20% per year.
From a note to clients that landed on my desktop Thursday morning:
All You Need to Know: In this report, we provide a detailed analysis of AAPL’s services business with a focus on NEW GROWTH VECTORS. We think the potential for new offerings to be an accelerant to services growth remains underappreciated as upside to growth (vs. 20% bogey) will come from – New offerings + ARPU and not install base. Over the last 5-years, Apple’s services business has sustained ~20% CAGR creating a sizable base of high-margin, recurring revenue. Growth over the last 5-years was driven by install base growth (11% 5-year CAGR) with limited contribution from incremental monetization and/or new initiatives. Apple has announced numerous services offerings in the past year (Card, TV+, Arcade), which should drive higher ARPU and keep services growth elevated. Higher services mix should push gross margins higher and help smooth cyclicality. In addition, Apple continues to build its base of subscription services, which helps make the case for a higher multiple given the recurring nature of the cash flows.
Net/net: Services remains an underappreciated growth lever especially given the shift in growth towards monetization and subscription based model. We see healthcare, cloud and advertisements as driving the next leg-up for growth.
Maintains Outperform rating and raising target to $345 from $330.
One of the report’s 35 charts and graphs: