Daniel Ives: Apple's Services biz alone is worth $1.5 trillion

"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


  1. Robert Paul Leitao said:
    Services revenue will continue to rise. Although about 68% of App Store revenue currently comes from games, I expect the revenue mix to broaden and for Apple to add more subscription-based revenue streams. I believe Apple One is a “sleeper success” and its success is mostly dismissed by the Street at this time.

    January 2, 2022
  2. Michael Goldfeder said:
    @Robert: I’m wondering just how much of an impact that “Apple One”, which also includes the Apple Fitness+ service, has had on the recent demise of Peloton? While I understand that folks are getting back to the gym, many have decided the convenience of working out from home is here to stay. Perhaps services are going to be stronger than ever in the next several reporting periods. I believe “Apple One” is easily a successful product that nobody is talking about on WS, other than the “Good Dan!”

    January 2, 2022
    • Robert Paul Leitao said:
      @Michael: I believe Apple’s strategic planning is already at least five steps ahead of regulators and contentious developers. I see subscription-based services as far more stable and much easier for the Street to model. While I believe the App Store will continue to generate substantial revenue, I expect a migration in the revenue mix to more Apple-branded services with different compensation models for developers similar to what’s in play with Apple Arcade. In other words, the antidote to headline-grabbing developers and power hungry regulators is unfolding right before our eyes. There will continue to be opportunities for 3rd-party developers to deliver apps and content through the sales of apps and in-app purchases. I just see the revenue mix migrating over time.

      January 2, 2022
  3. Robert Paul Leitao said:
    Although Apple’s ascent to a $3 trillion market cap is being ballyhooed in the press, reaching that milestone is only symbolic. It’s a constituent outcome of an incredibly successful enterprise that’s on its way over time to a $4 trillion market cap. Instead of watching the market cap, I’d prefer the media focus on the products and service that drive the increase in the company’s value. In the context of the market cap, what is impressive is that over the past ten years management has deployed roughly one-half trillion dollars repurchasing shares and that has kept the market cap from rising even more quickly. For long-term investors, it’s the share price and not the market cap that matters.

    January 2, 2022
  4. Robert Paul Leitao said:
    Although Apple has been adversely impacted in the moment by supply chain challenges, the company did an outstanding job of delivering world-class products and services to consumers all over the world during a once-a-century crisis. Supply constraints will diminish in the March quarter as Apple delivers new and enhanced products & services to a world ravenous for relevant and productive solutions. The pandemic has accelerated the pace of the digital transformation and Apple is at the forefront of enterprises delivering the essential digital goods the world needs at this time. Like I said, the $3 trillion market cap is only symbolic. What drives the market cap is Apple’s pace of innovation.

    January 3, 2022

Leave a Reply