See how Apple's Services arm is on track to become as large as a Fortune 100 company this ...

Posted:
in AAPL Investors edited May 2017
Last year, Apple Chief Executive Tim Cook suggested the company's "Services" business could grow to the size of a Fortune 100 company within 2017. After the company's second fiscal quarter of 2017, Apple's steadily growing Services business -- encompassing Apple Music, the App Store and more -- is well on the way to matching Cook's prediction.




The Fortune 100 is a list of the largest companies in the United States compiled by Fortune magazine, ranked by gross revenue figures for the entire year. While it is impressive for a company to reach the wider Fortune 500 list, requiring over $5 billion in gross revenue to make the list, the barrier for entry is so much higher for the Fortune 100.

For 2016, the five lowest revenue-generating companies on the Fortune 100 list all brought in between $28 billion and $29 billion in gross revenue annually, with Northwestern Mutual in 100th place at $28.11 billion. For reference, Apple is in third place on the list with $233.72 billion, according to the table, behind Exxon Mobil ($246.2 billion) and Walmart ($482.13 billion).

In Apple's second quarter of fiscal year 2017, its Services arm generated $7.04 billion in revenue. When combined with the reported quarterly revenue of the previous three results, Apple's Services business accounts for $26.51 billion in gross revenue for the one-year period from Q3 2016 to Q2 2017.

Based on this, Apple's Services is currently $1.6 billion below the gross revenue of the 100th-place company on the Fortune 100 list. When expanded to the Fortune 500 rankings, the total revenue for the last four quarters would put services in 108th place, just behind Rite Aid's $26.53 billion in gross revenue.




Despite the seemingly large $1.6 billion shortfall, it is still highly plausible for the Services arm to reach Cook's goal within the next two quarters, based on previous performance for the Services business.
Total revenue for Apple's Services business over the last 4 quarters would put it in 108th place, just behind Rite Aid's $26.53 billion in gross revenue.
In analysis of the segment earlier this year by AppleInsider, it was noted that Services revenue has offered positive year-on-year growth of between 9.1 percent and 26.2 percent over the last two years. Compared to other product segments, Services continues to be relatively unaffected by seasonal variances, with minimal sequential quarter dips in revenue.

In the latest results, Services saw year-on-year revenue growth of 17.5 percent, slightly reduced compared to the 18.4-, 24.4-, and 18.9-percent year-on-year growth experienced in the previous three quarters, but still quite consistent with the overall growth trend for the last two years.

To reach the same level of revenue as the lowest-placed Fortune 100 listing by the end of the year, Services would have to report a combined revenue growth of $1.6 billion in the next two quarters.

It is possible for this to be achieved in the next quarter, but it would require Apple to set a new record in Service revenue growth. To do this, Services would have to generate at least $7.58 billion in revenue, which would represent a year-on-year growth of 26.8 percent on $5.98 billion from Q3 2016, higher than the 26.2 year-on-year growth recorded in the first quarter of 2016.

Achieving the same result in two quarters is a much easier prospect, partly because of the higher $6.33 billion figure from Q4 2016. If Apple saw just 13 percent Services revenue growth for each of the next two quarters, the total revenue for the four last quarters would be just over $28 billion, equalling Northwestern Mutual's gross revenue.

As of Tuesday, the average year-on-year gross revenue increase for Services is 18.5 percent, based on figures from the last eight quarters. Taking this into account, it is likely the Services business will meet Cook's prediction quite comfortably.




Based on Services revenue growth at the 18.5-percent average, it is plausible for the arm to have a four-quarter gross revenue in the region of $28.8 billion. In the current Fortune rankings, this would effectively put Apple's services in 98th place, ahead of Tesoro and Time Warner on the list.

It is worth noting that this theoretical ranking for Apple's Services is based on the currently-listed figures on the Fortune list. It is a certainty that the revenue of companies on the list will vary over time, so the figure the Services arm has to beat, in order to be considered the equivalent of a Fortunes 100 company, will have changed by the end of the year. Whether that moving target increases or decreases remains to be seen.

For example, Time Warner saw its annual gross revenue drop 2.3 percent for the last fiscal year, but still improved on last year's rank of 104 to 99 this year. Northwestern Mutual, in 100th place, achieved its improvement from 109th position with a 2.4-percent increase in revenue. The 98th-placed petroleum refiner Tesoro only just stayed within the Fortune 100, plummeting from 77th with a 29.7-percent year-on-year annual gross revenue decrease.

The only real way for Cook to turn out to be wrong about Services is if Apple's growth trend in that segment is severely interrupted. But that appears quite doubtful.

Analysts believe the Services sector will continue to grow steadily, with Apple Music seen as a "very attractive opportunity" for user growth, according to Amit Daryanani of RBC Capital Markets. Apple has already confirmed Apple Music's growth, with double-digit revenue increases reported in the last quarter.

The upcoming "super cycle," releases of the "iPhone 7s" and "iPhone 8" this fall, more acquisitions, and other product launches are also seen by analysts as factors that are likely to bolster Services revenue growth.

With the potential for the Services arm to reach Cook's expectation by the end of the year seemingly likely to happen, Apple's chief executive is still looking for bigger improvements. There are now plans to double the size of the Service business by 2020, a prospect that could certainly happen if Apple is able to continue growing at the current clip.
albegarc
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Comments

  • Reply 1 of 25
    SoliSoli Posts: 8,544member
    Wait, but I keep getting told that Apple only makes money on the iPhone¡
    albegarcStrangeDaysbb-15caliwatto_cobra
  • Reply 2 of 25
    gatorguygatorguy Posts: 20,013member
    Really the only thing preventing Apple from swallowing great swaths of the tech industry is government regulators. They've certainly got the cash. They may in the relatively near future be rich enough, if they aren't already, to take over a company even the size of Google, especially with a little financing help thru bonds or whatever.  Not that it would ever happen, and not just because of antitrust. But there's not much out of reach of Apple whose far more powerful than even Exxon at it's height IMHO.

    The underdog has grown up. ;)
    albegarccaliradarthekatjony0
  • Reply 3 of 25
    rogifan_newrogifan_new Posts: 3,770member
    sog35 said:
    gatorguy said:
    Really the only thing preventing Apple from swallowing great swaths of the tech industry is government regulators. They've certainly got the cash. They may in the relatively near future be rich enough, if they aren't already, to take over a company even the size of Google, especially with a little financing help thru bonds or whatever.  Not that it would ever happen, and not just because of antitrust. But there's not much out of reach of Apple whose far more powerful than even Exxon at it's height IMHO.

    The underdog has grown up. ;)
    Apple should use their money to buy a couple smaller companies:

    1. Shopify - the current leader in small/medium eCommerce platform. If a small/Med business wants to transition to selling online they go to Shopify. Their platform handles the website design, shipping, inventory management, social media marketing, sales channels, financing, payment processing, ect. Current valuation is $7 billion. Apple might be able to buy it for $15 billion. This move is to keep Amazon at bay.

    2. Buy Playstation Vue - best streaming services for live TV. 

    3. Buy some Video game companies to make games for AppleTV


    How is Amazon threatening Apple?
  • Reply 4 of 25
    gatorguygatorguy Posts: 20,013member
    sog35 said:
    gatorguy said:
    Really the only thing preventing Apple from swallowing great swaths of the tech industry is government regulators. They've certainly got the cash. They may in the relatively near future be rich enough, if they aren't already, to take over a company even the size of Google, especially with a little financing help thru bonds or whatever.  Not that it would ever happen, and not just because of antitrust. But there's not much out of reach of Apple whose far more powerful than even Exxon at it's height IMHO.

    The underdog has grown up. ;)
    Apple should use their money to buy a couple smaller companies:

    1. Shopify - the current leader in small/medium eCommerce platform. If a small/Med business wants to transition to selling online they go to Shopify. Their platform handles the website design, shipping, inventory management, social media marketing, sales channels, financing, payment processing...


    ...along with user tracking across multiple websites for targeted ads. While ads don't strike fear in me it's counter to Apple's current marketing efforts, "privacy" being a big ol' bullet point. Doesn't sound like an Apple-y purchase to me at all. Don't hold your breath. 
    edited May 2017 tmayjony0watto_cobra
  • Reply 5 of 25
    brucemcbrucemc Posts: 1,507member
    You always see some commentary as to "how can Apple grow their services when sales of their products are growing slowly or declining" depending on the case.  Many confuse units sales vs installed base.  Apple continues to grow their installed base in all categories - e.g. selling to new users.  The iPhone is increasing its installed base by "double digit" %, according to Cook.  I have seen estimations of current iPhone installed base between 600 - 700M users.  Even growing 10% adds 60-70M to the total.  Services growth (averaging about 18% last few years) is coming from both installed base growth, and more $$ spent per user.  The growth in spend/user is rising, but I don't expect as fast as installed base growth - so that may be around 15% or more.  

    While there are more than 1 billion active iOS devices, these devices are spread across users with multiple devices (how many iPad owners also have iPhones).  But based on trends, Apple could very well reach 1B active users in the next few years.  Pretty premium users at that.

    There are still many ways for Apple to grow services within existing users as well:
    - iCloud services (better storage options, improved experience, moving beyond storage, improve photos & videos)
    - AppleCare (beyond the per-device approach - family plans, etc.  I rarely buy per device, but would cover more devices with a better bundle)
    - Apple Music (Apple is very active here)
    - A native video service (doesn't seem like we will say anything here in the near term)
    - Bundling (Apple doesn't do any - not even bundling iTunes Match with Apple Music).  I might go with Apple Music if there was a really good iCloud bundle, such that I felt I was getting better value (I have a sizeable library and prefer to buy from iTunes, and don't see value in music alone for $10-$15/month).


    hmurchisonwatto_cobra
  • Reply 6 of 25
    StrangeDaysStrangeDays Posts: 6,804member
    sog35 said:
    gatorguy said:
    Really the only thing preventing Apple from swallowing great swaths of the tech industry is government regulators. They've certainly got the cash. They may in the relatively near future be rich enough, if they aren't already, to take over a company even the size of Google, especially with a little financing help thru bonds or whatever.  Not that it would ever happen, and not just because of antitrust. But there's not much out of reach of Apple whose far more powerful than even Exxon at it's height IMHO.

    The underdog has grown up. ;)
    Apple should use their money to buy a couple smaller companies:

    1. Shopify - the current leader in small/medium eCommerce platform. If a small/Med business wants to transition to selling online they go to Shopify. Their platform handles the website design, shipping, inventory management, social media marketing, sales channels, financing, payment processing, ect. Current valuation is $7 billion. Apple might be able to buy it for $15 billion. This move is to keep Amazon at bay.

    2. Buy Playstation Vue - best streaming services for live TV. 

    3. Buy some Video game companies to make games for AppleTV
    How is Amazon threatening Apple?
    Yeah not getting this. A low-profit online retail channel isn't Apple's business. 

    Nor is selling games. 
    watto_cobra
  • Reply 7 of 25
    melgrossmelgross Posts: 31,371member
    Just a point of information to correct a number. Last year, Apple's sales were slightly down from 2015. In 2015, they were a bit over $233 billion. Last year, they were around $218 billion. This financial year, they should be somewhere in between.
    watto_cobra
  • Reply 8 of 25
    calicali Posts: 3,495member
    sog35 said:
    gatorguy said:
    Really the only thing preventing Apple from swallowing great swaths of the tech industry is government regulators. They've certainly got the cash. They may in the relatively near future be rich enough, if they aren't already, to take over a company even the size of Google, especially with a little financing help thru bonds or whatever.  Not that it would ever happen, and not just because of antitrust. But there's not much out of reach of Apple whose far more powerful than even Exxon at it's height IMHO.

    The underdog has grown up. ;)
    Apple should use their money to buy a couple smaller companies:

    1. Shopify - the current leader in small/medium eCommerce platform. If a small/Med business wants to transition to selling online they go to Shopify. Their platform handles the website design, shipping, inventory management, social media marketing, sales channels, financing, payment processing, ect. Current valuation is $7 billion. Apple might be able to buy it for $15 billion. This move is to keep Amazon at bay.

    2. Buy Playstation Vue - best streaming services for live TV. 

    3. Buy some Video game companies to make games for AppleTV


    How is Amazon threatening Apple?
    They're attempting to develop knockoff devices but are failing. Alexa at least had original hardware though.

    also hate to put you on the spot but remember a few quarters ago you said Tim Cook kept mentioning services to hide bad hardware sales? Well now you know why. Services actually IS the future.
    watto_cobra
  • Reply 9 of 25
    calicali Posts: 3,495member
    sog35 said:
    gatorguy said:
    Really the only thing preventing Apple from swallowing great swaths of the tech industry is government regulators. They've certainly got the cash. They may in the relatively near future be rich enough, if they aren't already, to take over a company even the size of Google, especially with a little financing help thru bonds or whatever.  Not that it would ever happen, and not just because of antitrust. But there's not much out of reach of Apple whose far more powerful than even Exxon at it's height IMHO.

    The underdog has grown up. ;)
    Apple should use their money to buy a couple smaller companies:

    1. Shopify - the current leader in small/medium eCommerce platform. If a small/Med business wants to transition to selling online they go to Shopify. Their platform handles the website design, shipping, inventory management, social media marketing, sales channels, financing, payment processing, ect. Current valuation is $7 billion. Apple might be able to buy it for $15 billion. This move is to keep Amazon at bay.

    2. Buy Playstation Vue - best streaming services for live TV. 

    3. Buy some Video game companies to make games for AppleTV


    1. Shopify for 15 billion?
    Apple could wipe them out with 5 billion investing in their own platform.

    2. Again PS Vue isn't that popular. Apple could wipe them out with less money and offer a better experience.

    3. Nintendo. Unfortunately Switch is doing well so I see Nintendo getting a big head again. This is a company that needs Apple more than Netflix or anyone.
    Other good game companies: Capcom, Bethesda and multiple indies who need funding.

    the problem with big game companies like Bethesda is they won't touch consoles with weak specs. Apple TV is years behind even the Switch.

    A8 is a joke for a gaming system. In 2017 A10X should be MINIMUM. Better would be a custom A-series gaming chip. Call it AG chip or something which disregards size limitations because Apple TV isn't a thin mobile device.
    watto_cobra
  • Reply 10 of 25
    MisterKitMisterKit Posts: 196member
    I can't see giving up my Apple Music or 200GB iCloud subscriptions for as long as I continue to own Macs, iPads, and iPhones. It's a no brainer.
    watto_cobra
  • Reply 11 of 25
    hmurchisonhmurchison Posts: 12,145member
    brucemc said:
    You always see some commentary as to "how can Apple grow their services when sales of their products are growing slowly or declining" depending on the case.  Many confuse units sales vs installed base.  Apple continues to grow their installed base in all categories - e.g. selling to new users.  The iPhone is increasing its installed base by "double digit" %, according to Cook.  I have seen estimations of current iPhone installed base between 600 - 700M users.  Even growing 10% adds 60-70M to the total.  Services growth (averaging about 18% last few years) is coming from both installed base growth, and more $$ spent per user.  The growth in spend/user is rising, but I don't expect as fast as installed base growth - so that may be around 15% or more.  

    While there are more than 1 billion active iOS devices, these devices are spread across users with multiple devices (how many iPad owners also have iPhones).  But based on trends, Apple could very well reach 1B active users in the next few years.  Pretty premium users at that.

    There are still many ways for Apple to grow services within existing users as well:
    - iCloud services (better storage options, improved experience, moving beyond storage, improve photos & videos)
    - AppleCare (beyond the per-device approach - family plans, etc.  I rarely buy per device, but would cover more devices with a better bundle)
    - Apple Music (Apple is very active here)
    - A native video service (doesn't seem like we will say anything here in the near term)
    - Bundling (Apple doesn't do any - not even bundling iTunes Match with Apple Music).  I might go with Apple Music if there was a really good iCloud bundle, such that I felt I was getting better value (I have a sizeable library and prefer to buy from iTunes, and don't see value in music alone for $10-$15/month).


    Good stuff in here.  

    iCloud is a given.  Where's the iCloud account for Family Sharing?   That's easy for Apple to do and difficult for Dropbox and Box to do. 

    I LOVE the idea of Apple Care offering  umbrella coverage.  I used to do this for HP Enterprise products back in the days.  It could be done by 
    someone of Apple's resources. 

    I have always wished that Apple would buy Vimeo.  Vimeo != Youtube and it is more inline core user (creative types) . Vimeo needs some UI help. Finding 
    stuff there can be cumbersome.   It'd work and it wouldn't be expensive. 

    Bundling makes total sense. 

    The potential of services is a gold mine for Apple.  They just have to make us an offer we can't refuse. 

    brucemc
  • Reply 12 of 25
    FolioFolio Posts: 482member

    Hard to overestimate potential for Apple in services, as article and comments attest.

    I’ve never seen any figures (maybe someone else?), but I’d guess at present once the devices are sold that Facebook and Google make more off Apple buyers than Apple does.

    Apple can finally change that. Imagine combos of augmented reality, maps, messaging etc. within the ecosystem where you have more control over what kind of offers you want to see, courtesy of Apple, as you drive home or walk down sidewalk.

    Let’s hope Apple’s plan in reaching Fortune 100 is to take better advantage of its own prosperous device buyers for mutual reinforcement. I certainly trust them more than FB or GOOGL. (And look what happened to yahoo’s trove of data.)

    [Of course for AAPL stockholders, a larger portion of high margin services of means a multiple much higher than 14 x or so of hardware companies. And might inaugurate era of less sweat on quarterly iPhone numbers.]

  • Reply 13 of 25
    rogifan_newrogifan_new Posts: 3,770member
    cali said:
    sog35 said:
    gatorguy said:
    Really the only thing preventing Apple from swallowing great swaths of the tech industry is government regulators. They've certainly got the cash. They may in the relatively near future be rich enough, if they aren't already, to take over a company even the size of Google, especially with a little financing help thru bonds or whatever.  Not that it would ever happen, and not just because of antitrust. But there's not much out of reach of Apple whose far more powerful than even Exxon at it's height IMHO.

    The underdog has grown up. ;)
    Apple should use their money to buy a couple smaller companies:

    1. Shopify - the current leader in small/medium eCommerce platform. If a small/Med business wants to transition to selling online they go to Shopify. Their platform handles the website design, shipping, inventory management, social media marketing, sales channels, financing, payment processing, ect. Current valuation is $7 billion. Apple might be able to buy it for $15 billion. This move is to keep Amazon at bay.

    2. Buy Playstation Vue - best streaming services for live TV. 

    3. Buy some Video game companies to make games for AppleTV


    How is Amazon threatening Apple?
    They're attempting to develop knockoff devices but are failing. Alexa at least had original hardware though.

    also hate to put you on the spot but remember a few quarters ago you said Tim Cook kept mentioning services to hide bad hardware sales? Well now you know why. Services actually IS the future.
    What exactly is services anyway? I'd love to know what this figure is if you strip out App Store sales and Apple's cut of IAP. How much revenue is Apple generating off of Apple Music and iCloud subscriptions? 
  • Reply 14 of 25
    radarthekatradarthekat Posts: 2,970moderator
    Folio said:

    [Of course for AAPL stockholders, a larger portion of high margin services of means a multiple much higher than 14 x or so of hardware companies. And might inaugurate era of less sweat on quarterly iPhone numbers.]

    A good rule of thumb, that is used by the VC community, is that recurring revenue streams typically get a 7x revenue valuation, whereas product [hardware] revenue typically gets a 4x valuation.  Look at Apple over the years; its typically sported a 3-4x sales valuation.  Now look at NFLX.  It's been right there pegged at 7x.  For sure Apple management understands this. 
    jSnively
  • Reply 15 of 25
    Rayz2016Rayz2016 Posts: 4,556member
    sog35 said:
    cali said:
    sog35 said:
    gatorguy said:
    Really the only thing preventing Apple from swallowing great swaths of the tech industry is government regulators. They've certainly got the cash. They may in the relatively near future be rich enough, if they aren't already, to take over a company even the size of Google, especially with a little financing help thru bonds or whatever.  Not that it would ever happen, and not just because of antitrust. But there's not much out of reach of Apple whose far more powerful than even Exxon at it's height IMHO.

    The underdog has grown up. ;)
    Apple should use their money to buy a couple smaller companies:

    1. Shopify - the current leader in small/medium eCommerce platform. If a small/Med business wants to transition to selling online they go to Shopify. Their platform handles the website design, shipping, inventory management, social media marketing, sales channels, financing, payment processing, ect. Current valuation is $7 billion. Apple might be able to buy it for $15 billion. This move is to keep Amazon at bay.

    2. Buy Playstation Vue - best streaming services for live TV. 

    3. Buy some Video game companies to make games for AppleTV


    1. Shopify for 15 billion?
    Apple could wipe them out with 5 billion investing in their own platform.

    2. Again PS Vue isn't that popular. Apple could wipe them out with less money and offer a better experience.

    3. Nintendo. Unfortunately Switch is doing well so I see Nintendo getting a big head again. This is a company that needs Apple more than Netflix or anyone.
    Other good game companies: Capcom, Bethesda and multiple indies who need funding.

    the problem with big game companies like Bethesda is they won't touch consoles with weak specs. Apple TV is years behind even the Switch.

    A8 is a joke for a gaming system. In 2017 A10X should be MINIMUM. Better would be a custom A-series gaming chip. Call it AG chip or something which disregards size limitations because Apple TV isn't a thin mobile device.
    1. No way Apple could wipe out Shopify with $5 billion. Apple has no idea how to design software to build eCommerce sites. Note that Amazon dropped their own platform because they could not compete with Shopify. Now Amazon is a Shopify partner. Thats how good the Shopify platform is.

    2. PS Vue isn't popular but they have done a ton of work closing content deals across the US, alot of cities have local channels

    3. If Apple buys a game dev they will make games for the AppleTV exclusively.
    As usual, you skim the headlines without understanding what you're reading. Apple does not act as a third-party platform for other vendors. They sell their own stuff, or sell a select few products which have to fit in with their branding. 

    I suspect you're thinking that buying Shopify would boost the stock price. 
  • Reply 16 of 25
    GeorgeBMacGeorgeBMac Posts: 3,858member
    Apple's services business goes far beyond anything that can be measured by revenue dollars of units...

    It exists in explicit form such as Apple Music.  But it also exists implicitly such as Apple Maps, Apple Support, ICloud photos and backup, etc...  Those embedded services are a MAJOR reason for the success of the IPhone and IPads.  Without those services, Apple competes primarily on hardware features.  And, in a mature market those hardware features can easily be matched by its competitiors -- as we see every time Samsung launches a new phone...

    I would argue that the success of the IPhone is primarily due to Apple services rather than its hardware or OS...   But, you will never see those services recorded in a revenue chart -- because they are part of the price of the phone.
  • Reply 17 of 25
    brucemcbrucemc Posts: 1,507member
    cali said:
    sog35 said:
    gatorguy said:
    Really the only thing preventing Apple from swallowing great swaths of the tech industry is government regulators. They've certainly got the cash. They may in the relatively near future be rich enough, if they aren't already, to take over a company even the size of Google, especially with a little financing help thru bonds or whatever.  Not that it would ever happen, and not just because of antitrust. But there's not much out of reach of Apple whose far more powerful than even Exxon at it's height IMHO.

    The underdog has grown up. ;)
    Apple should use their money to buy a couple smaller companies:

    1. Shopify - the current leader in small/medium eCommerce platform. If a small/Med business wants to transition to selling online they go to Shopify. Their platform handles the website design, shipping, inventory management, social media marketing, sales channels, financing, payment processing, ect. Current valuation is $7 billion. Apple might be able to buy it for $15 billion. This move is to keep Amazon at bay.

    2. Buy Playstation Vue - best streaming services for live TV. 

    3. Buy some Video game companies to make games for AppleTV


    How is Amazon threatening Apple?
    They're attempting to develop knockoff devices but are failing. Alexa at least had original hardware though.

    also hate to put you on the spot but remember a few quarters ago you said Tim Cook kept mentioning services to hide bad hardware sales? Well now you know why. Services actually IS the future.
    What exactly is services anyway? I'd love to know what this figure is if you strip out App Store sales and Apple's cut of IAP. How much revenue is Apple generating off of Apple Music and iCloud subscriptions? 
    AppleCare is a large part of Apple's Services.

    If you want some idea on splits, then it doesn't take a lot of effort to go to real Apple analysts/watchers and get their estimates (Asymco for one).  These guys develop and refine models over the years.

    Not that I think you really want to know.
  • Reply 18 of 25
    melgrossmelgross Posts: 31,371member
    What I'm curious about is how the net in services works out. Revenue in a number of these areas has little to do with actual net profit, as Apple gives so much away, and they do have continuing costs.

    so, some people think that when Apple takes their 30% cut, that's profit. But it isn't. I've seen estimates that out of every total dollar received in these areas, Apple makes just a 5% net profit, possibly less. So that's just 5% on a dollar's sale. Maybe less. So Apple talks about growth in services, but what's the addition to the bottom line? Is there an addition?
    edited May 2017
  • Reply 19 of 25
    carnegiecarnegie Posts: 622member
    melgross said:
    What I'm curious about is how the net in services works out. Revenue in a number of these areas has little to do with actual net profit, as Apple gives so much away, and they do have continuing costs.

    so, some people think that when Apple takes their 30% cut, that's profit. But it isn't. I've seen estimates that out of every total dollar received in these areas, Apple makes just a 5% net profit, possibly less. So that's just 5% on a dollar's sale. Maybe less. So Apple talks about growth in services, but what's the addition to the bottom line? Is there an addition?
    Apple's gross margins on its Services category are, based on what's been said in conference calls, better than its company-wide gross margins. That means better than 40%-ish. I'd guess they're something like 50%, though we can't really pin that number down with much precision. We also can't really figure out exactly what that means in terms of operating margins, i.e. pre-tax profit margins. But company-wide Apple is at around 10% of total revenue for operating expenses. So, maybe 40% operating margins on Services revenue? It could be a little higher or a little lower.

    We should keep in mind that Apple recognizes revenue from the App Store on a net basis. It doesn't count the 70% that developers get as part of its Services revenue, it only counts the 30% that it gets. That's not the case with some other content from the iTunes Store.
    Soli
  • Reply 20 of 25
    melgrossmelgross Posts: 31,371member
    carnegie said:
    melgross said:
    What I'm curious about is how the net in services works out. Revenue in a number of these areas has little to do with actual net profit, as Apple gives so much away, and they do have continuing costs.

    so, some people think that when Apple takes their 30% cut, that's profit. But it isn't. I've seen estimates that out of every total dollar received in these areas, Apple makes just a 5% net profit, possibly less. So that's just 5% on a dollar's sale. Maybe less. So Apple talks about growth in services, but what's the addition to the bottom line? Is there an addition?
    Apple's gross margins on its Services category are, based on what's been said in conference calls, better than its company-wide gross margins. That means better than 40%-ish. I'd guess they're something like 50%, though we can't really pin that number down with much precision. We also can't really figure out exactly what that means in terms of operating margins, i.e. pre-tax profit margins. But company-wide Apple is at around 10% of total revenue for operating expenses. So, maybe 40% operating margins on Services revenue? It could be a little higher or a little lower.

    We should keep in mind that Apple recognizes revenue from the App Store on a net basis. It doesn't count the 70% that developers get as part of its Services revenue, it only counts the 30% that it gets. That's not the case with some other content from the iTunes Store.
    It's really hard to say. Some of those services will have high margins in all categories, and some will have poor margins. I expect that Apple Music will be poor.
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