“Our goal is to double the size of the services business in the next four years.” — CEO Tim Cook in early 2017
From a note to Wedbush clients that landed on my desktop Sunday:
While the supply chain shortages has dominated the Street conversation around Apple in the holiday quarter, we instead are focused on the robust consumer demand story shaping up for iPhone 13 into 2022. Based on our supply chain checks over the last few weeks, we believe demand is outstripping supply for Apple by roughly 12 million units in the December quarter which now will add to the tailwinds for Cupertino in the March and June quarters as the supply chain issues ease in 1H22…
Apple is on pace to become the first $3 trillion market cap company in 2022… Hitting $3 trillion will be another watershed moment for Apple as the company continues to prove the doubters wrong with the renaissance of growth story playing out in Cupertino.
The linchpin to Apple’s valuation re-rating remains its Services business which we believe is worth $1.5 trillion in the eyes of the Street, coupled by its flagship hardware ecosystem which is in the midst of its strongest product cycle in over a decade led by iPhone 13. The Services business is further monetizing the Apple golden installed base and poised to reach $100 billion+ annual revenue by 2024.
Maintains Outperform rating and $200 target (bull case $225).
My take: Part of the reason the Street values Apple’s services business as highly as it does is that Cook made good his promise. Services revenue from fiscal 2016 to fiscal 2021:
- 2016: $24.3B
- 2017: $29.97B
- 2018: $37.1B
- 2019: $46.3B
- 2020: $53.7B
- 2021: $68.4B