Apple Services Business Reviewed

Apple Services Revenue Mix

Apple’s services business is becoming a big part of the thesis behind buying the stock as the smartphone market is saturated and there’s probably a limit to how much Apple can raise the prices of its iPhones. There was some pushback from the consumer after the $999 iPhone X came out. It doesn’t seem like the firm will be able to raise prices that much each year. Raising prices goes against every other consumer-tech hardware product’s price trajectory. Apple doesn’t break down its services business which makes the chart below, which utilizes a few data points Apple releases to get a mix of the revenue from each business line in the services category, very valuable. I find it shocking that the Apple Pay division has less than $1 billion in revenues which represents 0% of total services revenue.

Apple Pay & iCloud

Some claim Apple Pay drives services growth, which isn’t true. On the one hand, this means there’s room for growth, but on the other hand there needs to be a game changer to make it relevant. In the latest iPhone software updates, the settings app gives users an alert to set up their Apple Pay and iCloud accounts. To me this wreaks of desperation as the firm tries to nickel and dime consumers opposed to the past where growth stemmed from consumers desperate to buy the latest products such as iPhone, MacBook, and iPad. On the bright side, it’s not as if Apple Pay and iCloud are bad services. Apple Pay is a convenient way to make purchases and iCloud allows a more permanent place to save your videos, photos, documents, etc. Both services are for Apple device users which limits their addressable market, but acts as a benefit of buying Apple devices.

Apple Versus Amazon

Apple is in a difficult situation as it keeps needing to beat out amazing years of earnings results. Apple made more money last quarter than Amazon made in its entire existence. To be fair, Amazon has a different business strategy to Apple in that it invests its earnings into new products at a high rate, showing little profits. This allows the company to pay less taxes and grow quickly. It has worked for the company.

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