Explosive Apple Services growth expected to be main engine for future revenue expansion

Posted:
in AAPL Investors edited March 22
Apple may not be reliant on massive seasonal sales of the iPhone going forward for steady revenue growth, if a new analyst report is accurate.




In a note seen by AppleInsider, Katy Huberty from Morgan Stanley predicts that Apple's Services expansion will add up to more than 50 percent of revenue growth over the next five years. Apple's Services revenue incorporates the App Stores, AppleCare, Apple Music, Apple Pay, and iTunes.

In its most recent quarter, Apple posted $8.5 billion in revenue in its services category, up 13 percent year over year. At present, services revenue has grown to about $30 per active device -- although Huberty believes that only 18 percent of the users account for the spending.




"Over the last five years, the vast majority (86 percent) of Apple's 8 percent annual revenue growth was driven by iPhone sales," wrote Huberty. "It is through monetization of Apple's Services business that we see the company still generating mid single digit revenue growth."

As a result of the Services revenue expansion, Morgan Stanley has set a new price target for Apple stock at $203.

Earlier in March, Amit Daryanani from RBC had similar thoughts on the matter. Daryanani said in that report, that any predicted iPhone X softness in the present quarter would be offset by Services growth.




Apple's services revenue growth went mostly un-noticed until Apple CEO Tim Cook said in 2016 that he predicted that the segment alone would be the size of a Fortune 100 company before the end of 2017. Apple hit that goal on August 1, 2017, catapulting into 97th place ahead of Facebook's entire business.




Apple's future moves in services include a number of video efforts, with a suspected growth of video content budgeting swelling 54 percent every year through 2022 up to $1 billion in total. Any video on demand service anchored by these videos is expected to have a head start with about 75 million subscribers, according to recent predictions on the matter.

Comments

  • Reply 1 of 12
    DAalsethDAalseth Posts: 102member
    Does anyone know where the numbers are for how much of Apple's income comes from different products. Growth is one thing, but I'm curious what percentage of actual revenue is from Services, iPhone, Mac, and iPad. It's all fine and good if Services account for over 50% of growth. But if it's still a company mostly getting it's money from iPhone sales then it's not so promising.
  • Reply 2 of 12
    lkrupplkrupp Posts: 5,807member
    Let’s see now. According to the naysayer crowd that likes to comment here...

    Apple Music sucks

    iBooks sucks

    iCloud sucks

    Siri sucks

    Apple Maps sucks

    HomePod sucks

    iPhone X sucks

    iOS sucks

    macOS sucks

    Apple Watch sucks

    QA sucks

    Eddy Cue sucks

    Tim Cook sucks

    Jony Ive sucks

    So explain to me again, Ms. Huberty, how does Apple succeed going forward with products and services and management that suck? Hmmm? /s


    jony0
  • Reply 3 of 12
    wood1208wood1208 Posts: 1,358member
    lkrupp said:
    Let’s see now. According to the naysayer crowd that likes to comment here...

    Apple Music sucks

    iBooks sucks

    iCloud sucks

    Siri sucks

    Apple Maps sucks

    HomePod sucks

    iPhone X sucks

    iOS sucks

    macOS sucks

    Apple Watch sucks

    QA sucks

    Eddy Cue sucks

    Tim Cook sucks

    Jony Ive sucks

    So explain to me again, Ms. Huberty, how does Apple succeed going forward with products and services and management that suck? Hmmm? /s


    You SUCK!!!.
    blastdoor
  • Reply 4 of 12
    Mike WuertheleMike Wuerthele Posts: 2,336administrator
    wood1208 said:
    lkrupp said:
    Let’s see now. According to the naysayer crowd that likes to comment here...

    Apple Music sucks

    iBooks sucks

    iCloud sucks

    Siri sucks

    Apple Maps sucks

    HomePod sucks

    iPhone X sucks

    iOS sucks

    macOS sucks

    Apple Watch sucks

    QA sucks

    Eddy Cue sucks

    Tim Cook sucks

    Jony Ive sucks

    So explain to me again, Ms. Huberty, how does Apple succeed going forward with products and services and management that suck? Hmmm? /s


    You SUCK!!!.
    did you miss the /s at the end?
  • Reply 5 of 12
    carnegiecarnegie Posts: 330member
    DAalseth said:
    Does anyone know where the numbers are for how much of Apple's income comes from different products. Growth is one thing, but I'm curious what percentage of actual revenue is from Services, iPhone, Mac, and iPad. It's all fine and good if Services account for over 50% of growth. But if it's still a company mostly getting it's money from iPhone sales then it's not so promising.
    For FY2017, revenue by product category was:

    iPhone - $141.3 billion
    iPad - $19.2 billion
    Mac - $25.9 billion
    Services - $30.0 billion
    Other Products - $12.9 billion
  • Reply 6 of 12
    lkrupplkrupp Posts: 5,807member
    wood1208 said:
    lkrupp said:
    Let’s see now. According to the naysayer crowd that likes to comment here...

    Apple Music sucks

    iBooks sucks

    iCloud sucks

    Siri sucks

    Apple Maps sucks

    HomePod sucks

    iPhone X sucks

    iOS sucks

    macOS sucks

    Apple Watch sucks

    QA sucks

    Eddy Cue sucks

    Tim Cook sucks

    Jony Ive sucks

    So explain to me again, Ms. Huberty, how does Apple succeed going forward with products and services and management that suck? Hmmm? /s


    You SUCK!!!.
    Why thank you! At least I’m in good company! B)
    bestkeptsecret
  • Reply 7 of 12
    blastdoorblastdoor Posts: 1,780member
    Something that could really make services explode:

     Transportation as a service, provided by the autonomous AppleCar, easily called using Siri on your Watch, AirPods, iPhone, HomePod, or Mac.  
  • Reply 8 of 12
    rogifan_newrogifan_new Posts: 2,600member
    When did Tim or Luca say this?
  • Reply 9 of 12
    DAalsethDAalseth Posts: 102member
    carnegie said:
    DAalseth said:
    Does anyone know where the numbers are for how much of Apple's income comes from different products. Growth is one thing, but I'm curious what percentage of actual revenue is from Services, iPhone, Mac, and iPad. It's all fine and good if Services account for over 50% of growth. But if it's still a company mostly getting it's money from iPhone sales then it's not so promising.
    For FY2017, revenue by product category was:

    iPhone - $141.3 billion
    iPad - $19.2 billion
    Mac - $25.9 billion
    Services - $30.0 billion
    Other Products - $12.9 billion
    So like ~60% from the iPhone. Actually I beleive that's better. Looks like Apple is starting to balance out its product line a bit. Still iPhone dominated but getting better.
    edited March 22
  • Reply 10 of 12
    red oakred oak Posts: 606member
    Here is the related revenue projections from the same report from Katy.  This assume device sales (including iPhone) are flat.   This translate into ~ $25 EPS in 2024

    Gee, I wonder what that would mean for the stock.   And God help us if device sales were to actually grow 




    Screen Shot 2018 03 22 at 111854 AM
  • Reply 11 of 12
     The integration of HW and SW gave Apple a leg up in personal computing.  At this point they have pretty much merged into a single experience.  The expansion of Services, and their tight integration with the HW / SW, will drive Apple's likely dominance for the next decade or two.
  • Reply 12 of 12
    blastdoor said:
     Transportation as a service, provided by the autonomous AppleCar,

    I see the Pink Unicorns are out in force today. /s
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