Apple now collecting twice as much from iTunes, software & services as from iPod sales
Apple's reclassification of its revenues to isolate iTunes' software, media and services separately from its hardware products has revealed the hidden billions of dollars in revenues the company has been earning on top of its hardware sales of computers and gadgets, revenues that now dwarf the company's iPod sales.
Apple previously reported its revenue from its apps and accessories spread across several different buckets. "Other music related products and services" included revenue from sales in the iTunes Store, App Store and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories. iPhone and iPad revenues historically included "related products and services" revenue, which included Apple-branded and third-party accessories as well as the company's iOS-oriented services and licensing revenue.
Conversely, the company's "Software, service and other sales" category historically only included revenue from sales of Apple-branded and third-party software for the Mac platform. However, as AppleInsider recently outlined, that has changed in the most recent quarter's reporting.
As Apple's chief financial officer made clear in the company's earnings call last week, beginning in the fiscal Q1, "all revenue from iTunes, standalone Apple and third-party software and services is presented as a single line item and revenue from all Apple and third-party accessory sales is presented as a [seperate] single line item.
"We believe this presentation provides a logical grouping of revenue sources and also provides greater transparency into our results," he added.
With the change, Apple's reported revenues expressly attributed to its "software and services" have jumped from $891 million for the quarter ending in June 2012 to $2.5 billion in software and an additional $1 billion in accessory revenue. This isn't retroactive growth; it's just a clarification of where Apple's revenues were actually coming from in that quarter.
For all of fiscal 2011, Apple is now noting that it actually collected $9.37 billion from "iTunes Software and Services" (including iTunes Store media sales, App Store downloads, iBooks, iCloud, licensing programs such as the "Made for iPod" and AppleCare) and another $4.47 billion from accessory sales. That was almost $2 billion more than the company earned from selling iPods.
For the most recent fiscal year that ended last September, Apple collected a staggering $12.89 billion from software and services and $5.15 billion from accessories. The software number is over twice as much as Apple earned from iPod sales, while accessories revenue was just 10 percent less than the company's iPod revenues.
In the winter quarter (Apple's fiscal Q1), the company reported "iTunes Software and Services" revenues of $3.69 billion and accessory sales of $1.83 billion. Those figures represented year over year growth of 22 and 25 percent over the year ago quarter (despite that previous quarter having an extra week). That growth matched the net revenue growth of the company's blockbuster year-over-year iPad performance.
On a quarterly basis, Apple's $5.5 billion in combined software and accessory revenues amounted to more than twice what the company made from selling iPods in the holiday quarter. That revenue was also about equal to the company's quarterly revenues from selling Macs (although Mac sales were down significantly due to the late introduction of new iMac models).
Just five years ago, pundits were predicting that Apple's iPod business would overwhelm its Mac platform to the point where it would be best to just get rid of selling Macs entirely to focus on iPod sales. Apple didn't do that of course, but more more importantly, it also focused on peripheral sales to its new hardware line, turning iTunes into a digital software marketplace and erecting an ecosystem of accessories and services around it.
While Apple's new product introductions (particularly the iPhone and iPad) have gotten the most attention, iTunes has expanded dramatically over the past half decade. Efforts to rival iTunes, by Amazon, Google, Microsoft, Nokia, Sony, Samsung and others, have all done nothing to stop Apple's software and services growth and relatively very little to establish viable, competitive alternatives.
Apple previously reported its revenue from its apps and accessories spread across several different buckets. "Other music related products and services" included revenue from sales in the iTunes Store, App Store and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories. iPhone and iPad revenues historically included "related products and services" revenue, which included Apple-branded and third-party accessories as well as the company's iOS-oriented services and licensing revenue.
Conversely, the company's "Software, service and other sales" category historically only included revenue from sales of Apple-branded and third-party software for the Mac platform. However, as AppleInsider recently outlined, that has changed in the most recent quarter's reporting.
As Apple's chief financial officer made clear in the company's earnings call last week, beginning in the fiscal Q1, "all revenue from iTunes, standalone Apple and third-party software and services is presented as a single line item and revenue from all Apple and third-party accessory sales is presented as a [seperate] single line item.
"We believe this presentation provides a logical grouping of revenue sources and also provides greater transparency into our results," he added.
Books rejiggered to reflect change
Apple's reclassified statements of its quarterly earnings (shown above) over the past two years sheds light on just how much of what the company had been calling, for example "iPhone revenue" was actually attributable to iTunes' ecosystem sales of apps and services or accessories.With the change, Apple's reported revenues expressly attributed to its "software and services" have jumped from $891 million for the quarter ending in June 2012 to $2.5 billion in software and an additional $1 billion in accessory revenue. This isn't retroactive growth; it's just a clarification of where Apple's revenues were actually coming from in that quarter.
For all of fiscal 2011, Apple is now noting that it actually collected $9.37 billion from "iTunes Software and Services" (including iTunes Store media sales, App Store downloads, iBooks, iCloud, licensing programs such as the "Made for iPod" and AppleCare) and another $4.47 billion from accessory sales. That was almost $2 billion more than the company earned from selling iPods.
For the most recent fiscal year that ended last September, Apple collected a staggering $12.89 billion from software and services and $5.15 billion from accessories. The software number is over twice as much as Apple earned from iPod sales, while accessories revenue was just 10 percent less than the company's iPod revenues.
In the winter quarter (Apple's fiscal Q1), the company reported "iTunes Software and Services" revenues of $3.69 billion and accessory sales of $1.83 billion. Those figures represented year over year growth of 22 and 25 percent over the year ago quarter (despite that previous quarter having an extra week). That growth matched the net revenue growth of the company's blockbuster year-over-year iPad performance.
On a quarterly basis, Apple's $5.5 billion in combined software and accessory revenues amounted to more than twice what the company made from selling iPods in the holiday quarter. That revenue was also about equal to the company's quarterly revenues from selling Macs (although Mac sales were down significantly due to the late introduction of new iMac models).
iTunes is as big as Windows, Office
Even more shocking, Apple's iTunes software and accessory revenues for the quarter were roughly equal to Microsoft's revenues from its Windows or Business (Office, SharePoint and Exchange) Divisions, and more than a billion dollars greater than Microsoft's Entertainment and Devices Division (which sells the Xbox, Windows Phone and related products and accessories).Just five years ago, pundits were predicting that Apple's iPod business would overwhelm its Mac platform to the point where it would be best to just get rid of selling Macs entirely to focus on iPod sales. Apple didn't do that of course, but more more importantly, it also focused on peripheral sales to its new hardware line, turning iTunes into a digital software marketplace and erecting an ecosystem of accessories and services around it.
While Apple's new product introductions (particularly the iPhone and iPad) have gotten the most attention, iTunes has expanded dramatically over the past half decade. Efforts to rival iTunes, by Amazon, Google, Microsoft, Nokia, Sony, Samsung and others, have all done nothing to stop Apple's software and services growth and relatively very little to establish viable, competitive alternatives.
Comments
Apple IDs as credit accounts.
and this is why the endgame isn't selling more hardware at ever increasing margins.
The end game is making the 'apple ecosystem' an 'all-inclusive' experience, selling music, movies, books....
and tickets to music and movies
and tickets to airplanes
and hotels
and starbucks coffee
and gasoline
and electricity
and food
Even if apple doesn't sell it themselves, if they make it at a 5-30% on each sale for say $20-50 a month of sales for say.... 1 BILLION people...
That's VISA money opportunities.
BTW, Visa sells at a P/E of 83. and a market cap of 100B.
Apple is becoming really big and powerful. I just hope they keep behaving correctly, not like MS did, and they (Apple) are much more powerful now.
Quote:
Originally Posted by TheOtherGeoff
Apple IDs as credit accounts.
Even if apple doesn't sell it themselves, if they make it at a 5-30% on each sale for say $20-50 a month of sales for say.... 1 BILLION people...
That's VISA money opportunities.
BTW, Visa sells at a P/E of 83. and a market cap of 100B.
Forward PE on Visa is just 18. Also technology disruption would bet it is more likely that Visa is around and much larger in 10 years while Apple could potentially be a RIMM, Microsoft or Nokia in 10 years. One would think Visa would get an even higher forward multiple than 18 for this confidence in future cash flows
Quote:
Originally Posted by pedromartins
Apple is becoming really big and powerful. I just hope they keep behaving correctly, not like MS did, and they (Apple) are much more powerful now.
Have they done something to you that makes you worried?
If it gets bothersome enough, the market will speak.
These numbers are quite phenomenal. This segment has grown >35% between 2011-12.
The only thing I wonder about: Is all of iTunes sales included as 'revenue,' or only 30%?
Quote:
Originally Posted by anantksundaram
The only thing I wonder about: Is all of iTunes sales included as 'revenue,' or only 30%?
I would guess it's the full amount. And the fees paid to the record companies or app developers or book publishers is considered COGS (cost of goods sold). In other words, when you buy a track from iTunes, Apple records that as 99 cents of revenue. Then they pay the record company about 70 cents and call that COGS (there are other costs in there too...storage...bandwidth, etc.)
Is there a similarly broken out profit table?
Quote:
Originally Posted by mvigod
Forward PE on Visa is just 18. Also technology disruption would bet it is more likely that Visa is around and much larger in 10 years while Apple could potentially be a RIMM, Microsoft or Nokia in 10 years. One would think Visa would get an even higher forward multiple than 18 for this confidence in future cash flows
Visa disrupted conventional checking and store's own revolving credit lines. But, Visa (like MasterCard) doesn't actually extend credit or print cards or charge fees. It just licenses out its brand to other financial institutions.
If there is a "technical disruption" in payments, it will far more likely disrupt the old dinosaurs of plastic. And the most likely beneficiary will be whoever figures out how to best facilitate payments between buyers and sellers, not the plastic credit card brand introduced to your parent's generation.
Sure, Apple could conceivably lose its current position ten years from now, but the company is far more broad, vertically integrated and competent than the one trick RIM (messaging devices tied to a central server), the three trick Microsoft (Windows, Office/Server and Xbox) and the Finnish wood pulp and rubber outfit that happened upon telephony in the 1970s before imploding this decade. None of those companies have ever generated the revenues or profits of today's Apple, nor have they been able to successfully create or enter new lines of business, one right after the other, with the batting average of Apple.
Anyone who is not very impressed with Apple's performance over the past five years is simply ignorant and foolish. One doesn't even have to like the company or its products to understand and appreciate that it has transformed industries and shifted the global culture.
You might as well suggest the USA is going to collapse in a decade just because you can come up with examples of other governments that have in the last century. Spain, Italy, Germany, Prussia, France, Japan.
Quote:
Originally Posted by mvigod
Forward PE on Visa is just 18. Also technology disruption would bet it is more likely that Visa is around and much larger in 10 years while Apple could potentially be a RIMM, Microsoft or Nokia in 10 years. One would think Visa would get an even higher forward multiple than 18 for this confidence in future cash flows
because all markets recognize risk: the concept of a 16 digit number and a signature being a fungible financial instrument is up for technology disruption, just like the bank check. Everyone is a Potential RIMM or CarteBlanche. or Even a GE for that matter, and GE wasn't fundementally disrupted. Risk is everywhere.
Apple itself disrupts it's technology. Self annealing so to speak.
The comparison stands... And for that matter, it really brings in Apple's (and Visa's) true competitor, Amazon.
Although my hypothesis for the 130Billion in the bank is that Apple actually become a Bank. (a pretty large one at that). Given Apple's current model of creating an amazing personal computing experience, my guess owning the financial transaction experience(given under the current bank card model, Apple holds all the risk anyway) is in Apple's best interest to move that way as well.
This article takes a pretty straight-forward presentation from Apple that restates sources of revenue -- and tries to conflate that with the premise that Apple earnings from software is greater than Apple earnings from the iPad:
Quote:
Apple collected a staggering $12.89 billion from software and services and $5.15 billion from accessories. The software number is over twice as much as Apple earned from iPod sales
Or Microsoft earnings from Windows or Office:
Quote:
Even more shocking, Apple's iTunes software and accessory revenues for the quarter were roughly equal to Microsoft's revenues from its Windows or Business (Office, SharePoint and Exchange) Divisions, and more than a billion dollars greater than Microsoft's Entertainment and Devices Division (which sells the Xbox, Windows Phone and related products and accessories).
Apple does not break down earnings or profit by category -- but have stated on repeated occasions that the iTunes ecosystem is break-even, or:
Revenue -- Expenses ~= 0
earnings (profit) ~= 0
It is bullocks to suggest that any because any profitable Apple or Microsoft category is exceeded by iTunes Revenue -- that the iTunes store earnings are better...
Quote:
Originally Posted by Rogifan
What are earnings from iTunes/iBooks/AppStore?
According to Apple, break even or ~= $0
Quote:
Originally Posted by pedromartins
Apple is becoming really big and powerful. I just hope they keep behaving correctly, not like MS did, and they (Apple) are much more powerful now.
Well lets just look at some of there ethical behavior, They pledged to both the DOJ in this country and the EU Commission not to use frand patents to get injunctions like there competitors have(google, erickson, samsung, nokia, htc just to name a few), and did so in writing to both the DOJ and The EU commission. They have policed themselves and were the first to join organizations for ethical treatment of workers, and also have now been forcing there manufacturing partners to adopt there policies world wide for workers. They are going to run all of there data centers by the end of this year on 100% renewable energy. The list goes on and on.
I think there way ahead of microsoft on every account of ethical behavior and looks like they will continue to do so.
Quote:
Originally Posted by TheOtherGeoff
because all markets recognize risk: the concept of a 16 digit number and a signature being a fungible financial instrument is up for technology disruption, just like the bank check. Everyone is a Potential RIMM or CarteBlanche. or Even a GE for that matter, and GE wasn't fundementally disrupted. Risk is everywhere.
Apple itself disrupts it's technology. Self annealing so to speak.
The comparison stands... And for that matter, it really brings in Apple's (and Visa's) true competitor, Amazon.
Although my hypothesis for the 130Billion in the bank is that Apple actually become a Bank. (a pretty large one at that). Given Apple's current model of creating an amazing personal computing experience, my guess owning the financial transaction experience(given under the current bank card model, Apple holds all the risk anyway) is in Apple's best interest to move that way as well.
Interesting, I was thinking about what Apple could do with that money and banking came to mind. I dont know anything about it, but it doesnt seem that far fetched.
Quote:
Originally Posted by cycomiko
Can we go back to all those posts commenting that apple makes no money on iTunes, as its just "covering its overheads"
Not just yet. See posts 13 and 15 above. This article is only speaking of revenues, not profits.
1) iTunes ? iTunes Store or rather the iTunes Music Store when Apple made that statement. iTunes is an app they give away for free.
2) The chart clearly shows it's from the iTunes Store, App Store, Mac App Store, iBookstore, Applecare, Applecare+, licensing and other services. They very well could still be operating their music portion of the iTunes Store slightly in the black. I doubt it due to the economics of scale in a digital world but we don't actually know.
3) This chart lists revenue, not profit. There are plenty of companies that have made more revenue and had higher expenses thus putting them in the red for that quarter. I doubt it's the case here but, again, we don't actually know.
Quote:
Originally Posted by tkell31
Quote:
Originally Posted by TheOtherGeoff
because all markets recognize risk: the concept of a 16 digit number and a signature being a fungible financial instrument is up for technology disruption, just like the bank check. Everyone is a Potential RIMM or CarteBlanche. or Even a GE for that matter, and GE wasn't fundementally disrupted. Risk is everywhere.
Apple itself disrupts it's technology. Self annealing so to speak.
The comparison stands... And for that matter, it really brings in Apple's (and Visa's) true competitor, Amazon.
Although my hypothesis for the 130Billion in the bank is that Apple actually become a Bank. (a pretty large one at that). Given Apple's current model of creating an amazing personal computing experience, my guess owning the financial transaction experience(given under the current bank card model, Apple holds all the risk anyway) is in Apple's best interest to move that way as well.
Interesting, I was thinking about what Apple could do with that money and banking came to mind. I dont know anything about it, but it doesnt seem that far fetched.
The last time I looked (about 7 years ago), Apple was paying about 2%-5% on each cc transaction. Some of that is a fixed transaction processing fee and the rest is based on the amount of the transaction.
Apple does not necessarily post a transaction as each sale occurs -- rather they try to accumulate several sales into a single transaction -- to minimize transaction fees.
So, it does not appear that elimination of cc charges would be a big profit or cost savings opportunity for Apple.
However, if Apple were to expand their store to:
sell hard goods
finance sales of computers and phones
sell services, e.g. mobile phone services
Things like the above could be a significant financial opportunity.