Apple again shatters record for services revenue with $9.5 billion in fiscal Q3

AppleInsider

Apple's services financial category jumped 31 percent year-over-year in the third fiscal quarter of 2018, its best performance ever.

In its third quarter earnings release Tuesday, Apple announced that took in $9.5 billion in services revenue in the three-month period, a new record for the company. The previous record was $9.19 billion put in during the second quarter of this year.

The performance beat estimates, as analyst consensus had predicted $9.15 billion in services revenue.

Apple's services category includes a variety of different businesses: Digital Content and Services, Apple Pay, AppleCare, licensing and other services, including iTunes, the App Store, AppleMusic and iCloud. Apple did not break out the exact revenue numbers of each division in its earnings release.

In an earnings conference call, CEO Tim Cook attributed the strong performance to double-digit growth in Apple's overall active install base, and said the company is on track to double its services revenue by 2020.

Apple, Cook said, is up to 300 million paid subscriptions -- a 60 percent gain over the last year -- as he described subscription revenue as "a significant and increasing percentage of services business." The App Store now boasts some 30,000 subscription apps, and Cook.

Cook also said on the earnings call that Apple Music grew 50 percent year over year, while AppleCare grew by its highest rate in 18 quarters. Cloud services also grew more than 50 percent year over year.

The CEO added that Apple Pay is now in 24 markets worldwide, and will soon arrive in Germany.

When asked by an analyst what Apple's plans for services category are in the future, Cook was optimistic but vague.

"We couldn't be happier with how things are going, but in terms of the next leg-given the momentum that we're seeing across the board, we feel great about our current services, but obviously we feel great about our pipeline, with our new services as well. With the combination of these, we feel good," he said.

While iPhone remains Apple's most important product category, the surging services sector is emerging as another key to the company's financial performance.

anantksundaram

This portends a service revenue base of at least $40B over the next four quarters, in actuality much higher.

A number that’s not too far off from Facebook’s annual revenue.

lkrupp

anantksundaram said:

This portends a service revenue base of at least $40B over the next four quarters, in actuality much higher.

A number that’s not too far off from Facebook’s annual revenue.

Which speaks volumes about the shear size of Apple’s business and its dwarfing of other large companies.

SpamSandwich

Speaking for myself, I've been spending a lot more on a per app basis as the developers have become extremely sophisticated with their offerings these days.

MacPro

lkrupp said:

anantksundaram said:

This portends a service revenue base of at least $40B over the next four quarters, in actuality much higher.

A number that’s not too far off from Facebook’s annual revenue.

Which speaks volumes about the shear size of Apple’s business and its dwarfing of other large companies.

Anyone explained this to Wall Street yet?

Folio

anantksundaram said:

This portends a service revenue base of at least $40B over the next four quarters, in actuality much higher.

A number that’s not too far off from Facebook’s annual revenue.

Yes, true for FB 2017 annual revenue $40.6 B. But in latest brokerage report, even after the FB miss this quarter, 2018E sales estimated to be $55 B. Still very fast growing. But what's interesting is BAML predicts AAPL YoY earnings next few years will grow faster than FB.

anantksundaram

Folio said:

anantksundaram said:

This portends a service revenue base of at least $40B over the next four quarters, in actuality much higher.

A number that’s not too far off from Facebook’s annual revenue.

Yes, true for FB 2017 annual revenue $40.6 B. But in latest brokerage report, even after the FB miss this quarter, 2018E sales estimated to be $55 B. Still very fast growing. But what's interesting is BAML predicts AAPL YoY earnings next few years will grow faster than FB.

Apple’s will grow too. Many analysts are predicting $50B cumulative service revenues for Apple in the next four quarters. And that’s specifically why I said “...not too far off from Facebook...”

rogifan_new

I thought this call-out from John Gruber (quoting Jason Snell) was interesting:

https://daringfireball.net/linked/2018/08/01/iphone-x-snell

Snell, on Apple’s ever-increasing “Services: revenue:

As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac. (At least the Other Products line, which is also growing rapidly, contains real products like AirPods and the HomePod and the Apple Watch.)

It’s not even that the individual products aren’t good — in point of fact, I’m a happy Apple Music user, I sync my photos with iCloud, and I’ll get in line to give Apple my money for the new video service when it arrives. But to me, in its soul Apple is company that makes products — the amalgamation of hardware and software — and it will rise or fall based on its competency in those areas.

I think it’s even worse than that. I think Apple’s (Cook’s?) interest in increasing revenue from Services is keeping them from doing what’s right — increasing the base iCloud storage from 5 GB to something more reasonable.

I get where Snell is coming from and it can seem like Apple is just trying to wring more money out of customers and what’s exciting about that...BUT I don’t understand this notion that a product is a physical thing (Mac, iPhone) but something like Apple Music is not. I’ve never been a fan of the “services” term. To me they’re all products. But if that term has to be used, to me, being able to back up your device to iCloud is more of a service whereas I consider Apple Music more of a product - a software product. I do agree with Gruber though about iCloud storage.

lkrupp

Well, for years tech forum blogs and commenters have been castigating Apple for relying too much on the iPhone for revenue. Apple must diversify to survive the story goes, but the PC industry is shrinking, tablets have stalled, watches are still growing but not that fast. Samsung just stumbled because the smartphone market is maturing. What will the next big thing be? I follow technology pretty closely and I don’t see anything waiting in the wings yet other than improvements on existing products. Of course, anything can happen but can someone point out the next revolutionary product that the mass market will drool over and covet? AR and VR are already sort of happening but I don’t see those as revolutions that will change the world. If anything people are starting to reject all this technology in favor of real social interaction.

So now Apple starts to focus on services as a way to generate stable income and what happens? Jason Snell starts pouting and tech blogs start opining about the old days once again. Apple just can’t get it right I guess. Damned if they do and damned if they don’t.

gatorguy

MacPro said:

lkrupp said:

anantksundaram said:

This portends a service revenue base of at least $40B over the next four quarters, in actuality much higher.

A number that’s not too far off from Facebook’s annual revenue.

Which speaks volumes about the shear size of Apple’s business and its dwarfing of other large companies.

Anyone explained this to Wall Street yet?

It's all a shell game anyway. Adults playing cards with promissory notes. Didn't the benefit to Apple end when the stock was first issued and sold years ago? For the most part trading stocks on Wall Street has value only because we pretend it does AFAICT.