Evercore: Plenty of runway for Apple services

“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.

Key Points:

1. 1. 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).
   2. 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).
   3. 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.
   4. 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.
   5. 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
   6. 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.