“Our survey surprised to the upside on both take rates and ARPU [Average Revenue Per User]. — Analyst Amit Daryanani
From a note to clients that landed on my desktop Tuesday:
ALL YOU NEED TO KNOW: We are more positive on the long-term outlook for Apple Services growth following our survey of >3k smartphone users. Overall, we think AAPL is positioned to grow services revenues mid/high teens via. gaining incremental wallet share from existing iOS users with further upside from new offerings that AAPL can scale quickly across the 1.0B+ iOS users.
- Our survey indicates Services ARPU in the US is ~$108, which is ahead of our $81 global estimate although US users likely skew higher spending. ARPU growth is the key driver of services going forward as smartphone penetration has likely peaked (though regulatory issues bear monitoring).
- We estimate ARPU will grow at a 17% CAGR through FY26 and the survey implies there is plenty of runway for most Apple Services (music, TV, Arcade, etc).
- Apple Pay adoption is still low relative to international markets (survey is at ~40% have used in the last year), but we think initiatives like Apple Card and BNPL along with secular trends will accelerate adoption here.
- Apple TV adoption fairly impressive at 26% (HBO @ 34%. NFLX @ 73%), though unclear what % are paying subscribers. We expect this to inflect higher especially as AAPL integrates not just new content but also sports (MLB, MLS, NFL Sunday Night?) into their offerings.
- Music – while music adoption remains respectable at 22%, it’s notable that more iPhone users prefer SPOT (28%) vs. Apple Music (22%). Shifting this via. bundling could be beneficial for AAPL. And
- iCloud adoption is fairly high vs. what we would have expected with 72% of users having some form of iCloud offering (weighted average monthly spend per user here is $1.91) and AppleCare is being deployed by ~35% of current users, this number should keep inflecting higher as ASPs move higher.
Net/net: Our survey surprised to the upside on both take rates and ARPU, which increases our confidence that Apple can continue to grow the business at a mid-teens rate.
Maintains Outperform rating and $210 target.