Apple’s services business has grown ‘phenomenally’ to $100 billion a year

In its third-quarter 2024 report, Apple reported 12 percent year-over-year revenue growth from its services business to $25 billion, equivalent to $100 billion annually. This figure is a historical maximum for this category of activity. It is important that this line of Apple’s business provides significantly higher margins than the supply of devices, which makes it extremely attractive to the wolves of Wall Street.

Apple CFO Luca Maestri called the result “phenomenal” and “an important milestone.” He offered a “look back” and recalled that the services business had revenue of $4.8 billion in the fourth quarter of 2014. Over the past decade, Apple’s services division has become a critical part of Apple’s appeal to investors. Its third-quarter gross margin reached 74%, compared with Apple’s overall margin of 46.2%.

Apple offers its customers a wide range of services, including advertising, search licensing revenue from Google, AppleCare guarantees, cloud subscription services such as iCloud, content subscriptions such as Apple TV+, and payments from Apple Pay and AppleCare.

Back in 2016, CEO Tim Cook highlighted the business’s investment appeal: “I really think the assets we have in this area are huge, and I really think that’s probably what what the investment community would like and need to focus on more.”

Over the years, Apple has compared its services business to the size of Fortune 500 companies to give an idea of ​​its scale. Today he would be about forty in this ranking, ahead of Morgan Stanley and Johnson & Johnson.

Apple emphasizes that service revenue will grow as its user base grows. When purchasing an iPhone, a customer will purchase Apple subscriptions, use Safari to search Google, or purchase an extended warranty. The company said its installed base and subscriptions reached all-time highs. In February 2024, the company reported 2.2 billion active devices, and in August reported reaching 1 billion paid subscriptions.

However, Apple faces noticeable uneven growth in its services business. Between 2016 and 2021, annual growth reached 27.3%, fell to 9.1% in FY2023, and then recovered to about 13%. Apple expects to maintain the current figure in the near future.

According to Cook, the services business has significant prospects for further growth. “There are a lot of customers you have to try to convince to take advantage of this,” he said. — We will continue to invest in services and add new features. Whether it’s News+, Music or Arcade, that’s what we’re going to do.” This position is somewhat at odds with the company’s original marketing philosophy, which meant responding to customer needs rather than imposing additional services.

Image Source: Apple

Apple’s fourth-quarter results beat Wall Street’s revenue and profit expectations, but net income fell after paying a one-time charge as part of an EU tax ruling. Apple shares fell 2% in extended trading.