Apple services will be size of Fortune 100 company by 2017, Cook says

Posted:
in AAPL Investors
Apple CEO Tim Cook during a quarterly investor conference call on Tuesday said he expects his company's services sector, which continues to exhibit growth despite slumping iPhone sales, to generate revenues equivalent to that of a Fortune 100 company next year.




Cook said revenues from Apple's services businesses, including iTunes, iCloud, Apple Music, Apple Pay, Apple Care and the various App Stores, grew 19 percent year over year to hit a new June quarter record of $6 billion. Of note, App Store revenue reached a new all-time high after finishing up 37 percent for the quarter.

"In the last twelve months, our services revenue is up almost $4 billion year-on-year to $23.1 billion and we expect it to be the size of a Fortune 100 company next year," Cook said.

The increase was also prominently featured in Apple's earnings press release.

As expected, Cook pinned the success on an active customer base of device owners. Specifically, Apple saw $10.3 billion in install base-related purchases, up 29 percent from the same time last year.

While investors and industry watchers concentrate on iPhone, iPad and Mac revenue -- Apple is, after all, a hardware company -- the services sector is quietly becoming increasingly important to the firm's bottom line. Earlier this year, investment bank Piper Jaffray estimated gross margins on Apple's services business hovered at 60 percent for fiscal 2015, making it a much better proposition as compared to physical goods.

On a related note, Cook was asked to comment on China's decision to ban both iTunes Movies and the iBooks Store in April. According to Cook, the shutdown had no discernible effect on Apple's earnings for the quarter. Despite China's massive installed user base, the two online stores generated less than $1 million over their six months of operation.

That being said, Cook noted Apple is working with Chinese government agencies to bring the services back online.

Apple earlier today posted earnings for the third fiscal quarter of 2016, beating Wall Street expectations with $42.4 billion in revenue and net income of $7.8 billion.

Comments

  • Reply 1 of 14
    slprescottslprescott Posts: 752member
    Buy Netflix and you'll instantly add another $7B to Apple Services revenue.
  • Reply 2 of 14
    SpamSandwichSpamSandwich Posts: 31,007member
    Buy Netflix and you'll instantly add another $7B to Apple Services revenue.
    Although they'd have to spin-off or eliminate their DVD-by-mail service.
    calijay-tTurboPGT
  • Reply 3 of 14
    red oakred oak Posts: 657member
    Buy Netflix and you'll instantly add another $7B to Apple Services revenue.
    Overpriced.  High mkt cap and they make VERY little in profit 
    joshalolliverpalominebrucemcTurboPGT
  • Reply 4 of 14
    foggyhillfoggyhill Posts: 4,767member
    Buy Netflix and you'll instantly add another $7B to Apple Services revenue.
    And little profits, which makes the PE ratio very bad indeed. Not something Apple would ever buy.


    joshalollivercaliEsquireCatspalominebrucemcTurboPGTjony0
  • Reply 5 of 14
    red oakred oak Posts: 657member
    #100 on the Fortune list generates $28B revenue/yr.  So, Cook projecting at least $7B per quarter in 2017.  

    That would be a (minimum) 18% increase from the current level 

    nostrathomascalibadmonk
  • Reply 6 of 14
    joshajosha Posts: 901member
    red oak said:
    #100 on the Fortune list generates $28B revenue/yr.  So, Cook projecting at least $7B per quarter in 2017.  

    That would be a (minimum) 18% increase from the current level 

    Very well done Tim.
    Those "not so smart analysts" are oh so stuck on your iPhone volume.
    They would fail miserably if they were running your Apple!
    calipalominebrucemcpatchythepirated.j. adequatenolamacguySpamSandwichargonaut
  • Reply 7 of 14
    calicali Posts: 3,495member
    Hopefully Apple Music is really fixed in iOS 10. I subscribed recently and it crashed the app.

    Fixing the service would eventually put them above Spotty in marketshare soon.
    I saw Apple Music on a droid for the first time. I laughed.
  • Reply 8 of 14
    cintoscintos Posts: 111member
    Buy Netflix and you'll instantly add another $7B to Apple Services revenue.
    If you are into this "revenue without profit" thing, go ahead and move along to AMZN. 
    SolibrucemcTurboPGT
  • Reply 9 of 14
    2old4fun2old4fun Posts: 219member
    cali said:
    Hopefully Apple Music is really fixed in iOS 10. I subscribed recently and it crashed the app.

    Fixing the service would eventually put them above Spotty in marketshare soon.
    I saw Apple Music on a droid for the first time. I laughed.
    Maybe you should examine your platform setup. My family of 4 have no problems with Apple Music on an iPhone 5s, 6, 6+ and 6s+. Apple Music works fine on my Pioneer CarPlay unit in my truck (granddaughter loves the Pioneer remote so she can skip songs). How much money is Spotify making with their marketshare? The holy grail of marketshare is a myth of number manipulators justifying their position as analyst.
    ration alnolamacguyargonaut
  • Reply 10 of 14
    cincyteecincytee Posts: 260member
    Apple CEO Tim Cook during a quarterly investor conference call on Tuesday said he expects his company's services sector, which continues to exhibit growth despite slumping iPhone sales, to generate revenues equivalent to that of a Fortune 100 company next year.

    Cook said revenues from Apple's services businesses, including iTunes, iCloud, Apple Music, Apple Pay, Apple Care and the various App Stores, grew 19 percent year over year to hit a new June quarter record of $6 billion. "In the last twelve months, our services revenue is up almost $4 billion year-on-year to $23.1 billion and we expect it to be the size of a Fortune 100 company next year," Cook said.

    So that's about a 20% annual growth rate. At the same pace, service revenues in a year would be $27.8 billion, about $33 billion the year after that. For comparison, current No. 100 on the Fortune U.S. 500 is Northwestern Mutual, with 2015 revenues of $28.1 billion and earnings of $815 million. No. 100 on the Global 500 is Airbus, with revenues of $71.5 billion and $2.99 billion in profits.
    The increase was also prominently featured in Apple's earnings press release.

    ... [T]he services sector is quietly becoming increasingly important to the firm's bottom line. Earlier this year, investment bank Piper Jaffray estimated gross margins on Apple's services business hovered at 60 percent for fiscal 2015, making it a much better proposition as compared to physical goods.
    Ummm, doesn't seem that quiet to me.
  • Reply 11 of 14
    brucemcbrucemc Posts: 1,527member
    Apple isn't a services company (at this time, and I really don't think that will become their primary focus in at least next 10 years), but they are certainly developing a sizeable business.  Just as comparison, Apple's services revenue is in the same ballpark as Facebook's ($17B in 2015).  FB is of course growing faster right now, but something to think about.

    For those that say "yes, but Apple's services is tied to their h/w..." - yes - but don't forget it is tied to "installed base", not simply the rise and fall of quarterly shipments.  I am pretty sure Apple has grown their installed base of active users and devices pretty much every year for the last 19 years.

    Some may criticize Apple mgmt for focusing so much on this on the calls, but for those here that obsess over the stock price, highlighting the recurring revenue & growing installed base is the best way to get a higher multiple attached to AAPL, and thus move the stock.
    ration al
  • Reply 12 of 14
    brucemcbrucemc Posts: 1,527member

    foggyhill said:
    Buy Netflix and you'll instantly add another $7B to Apple Services revenue.
    And little profits, which makes the PE ratio very bad indeed. Not something Apple would ever buy.

    Indeed.  For a company to be a "great services company" (primary/only focus), they need to be cross platform to reach as many potential customers as possible.  Netflix is doing well.

    You don't have to buy a company to enhance your own offering.  Apple is better served partnering (in one form or another) with these content companies like Netflix, Time Warner (HBO), etc.  Making Apple devices the best to serve their content.  They are already doing this to some degree, but no doubt it could improve.

    NFLX stock price is astronomical.  They are executing well on their plan, but don't see anyone valuing their dollars buying them, except to buy top-line growth without regards to profit.
  • Reply 13 of 14
    Profit - profit - profit rather than innovation - revolution - progress
  • Reply 14 of 14
    ksecksec Posts: 1,554member
    I expect the TV and Apple Music to grow. Hopefully making this Services Sector much larger.
Sign In or Register to comment.