Apple's Services Revenue Hits New All-Time High of $11.46 Billion

[MacRumors]

Apple's services category, which includes iTunes, the App Store, the Mac App Store, Apple Music, Apple Pay, AppleCare, and more, has become an important revenue driver for Apple amid stagnating iPhone sales, leading Apple to focus more effort on its services category.

In the third fiscal quarter of 2019, Apple's services segment brought in $11.46 billion, up from $10.17 billion in the year-ago quarter and $11.45 billion in the second quarter of 2019.

Apple set new all-time records for AppleCare, Apple Music, App Store search ads, and more, along with a new third-quarter revenue record for the App Store. Apple saw double digit services revenue in all five geographical segments.

Apple surpassed 420 million paid subscribers in the third quarter, and Apple CEO Tim Cook said that Apple is well on its way to reaching its goal of reaching $14 billion in services revenue per quarter by 2020.

Apple Pay is now in 47 markets and in the June quarter, started adding more new users than PayPal and monthly transaction volume is growing 4x as fast. Apple is starting to roll out NYC transit support for Apple Pay in the United States, and Chicago will follow later this year.

Apple in March announced new services that will continue to boost services revenue in the future. Apple News+, a $9.99 per month service that provides unlimited access to more than 200 magazines, has already launched, and later this year Apple is introducing Apple Arcade, Apple TV+, and a new Apple Card credit card.

Article Link: Apple's Services Revenue Hits New All-Time High of $11.46 Billion

 

[ipedro]

Tim Cook knows what he’s doing.

Apple has always produced the entire user experience or as Steve Jobs used to say “we make the whole widget”.

When Apple started off, that was hardware and software but these days, we use our devices for a lot more than just applications. We use them primarily for services. Apple produces those services as a part of “the whole widget”. That includes TV since a significant part of our time these days is spent watching videos on our devices.

I have high hopes for AppleTV+ and AppleArcade. I also think that Apple is on the right track with AppleNews+, pending adjustments that need to be made like early AppleMusic.

 

[mdriftmeyer]

Tim Cook knows what he’s doing.

Apple has always produced the entire user experience or as Steve Jobs used to say “we make the whole widget”.

When Apple started off, that was hardware and software but these days, we use our devices for a lot more than just applications. We use them primarily for services. Apple produces those services as a part of “the whole widget”. That includes TV since a large part of our time on our devices is spent watching videos these days.

He always has and always will. Ignoramus chatter that is rampant on this site is just that--baseless and pointless. This is just the beginning of growth for Services. People will keep spouting off even after it surpasses $50 B and it will.

 

[nutmac]

In the third fiscal quarter of 2019, Apple's services segment brought in $11.46 billion, up from $10.17 billion in the year-ago quarter and $11.45 billion in the second quarter of 2019.

While $10 million quarterly growth isn't nothing, it's a bit of a stretch to use the number to boast "all-time high".

 

[neuropsychguy]

Rising services revenue might be used by Apple to keep hardware costs lower than they otherwise would be. Margin on services is much higher than hardware (60-something percent versus low 30%, respectively). Seeing this continue to grow is great news.

 

[Appleman3546]

Now is the perfect time to build up that install base before the App Store monopoly ends and competitors can price competitively without giving up a cut to Apple

 

[miscend]

Rising services revenue might be used by Apple to keep hardware costs lower than they otherwise would be. Margin on services is much higher than hardware (60-something percent versus low 30%, respectively). Seeing this continue to grow is great news.

I refuse to believe Apple’s hardware margins are only 30%. Their computers would be a lot cheaper if they were.

 

[miscend]

Now is the perfect time to build up that install base before the App Store monopoly ends and competitors can price competitively without giving up a cut to Apple

That’s unlikely ever to change. Games consoles have operated under a similar principle for several decades now. If you want to make software for their machines you need to pay a licence fee to Sony, Microsoft or Nintendo. The console makers also have monopoly in the production of game discs and cartridges.

 

[tmiw]

Apple is starting to roll out NYC transit support for Apple Pay in the United States, and Chicago will follow later this year.

Note that Chicago's already supported tapping debit/credit cards for a while. This is mainly to support Ventra in Apple Pay (and possibly Express Transit too).

 

[Ian619]

I think it’s hilarious people are so against Apple pursuing services. A $14B/quarter run rate puts them at $56B annually for services.

That’s more than eBay ($10.74B), Salesforce ($13.28B), PayPal ($15.45B) and Netflix ($15.79B) combined...

 

[Apple'sMessyProductLineup]

That’s unlikely ever to change. Games consoles have operated under a similar principle for several decades now. If you want to make software for their machines you need to pay a licence fee to Sony, Microsoft or Nintendo. The console makers also have monopoly in the production of game discs and cartridges.

Good lord, are you really trying to equate the duopolistic operating system and app stores of Apple/Google (99.9% of the market) to companies who make video games? A smartphone is a completely different class of product essential to everyday life than a video games console. Everybody has and uses a smartphone. By contrast, almost everybody doesn't play video games and they are not even close to essential for daily life and functioning in the modern world.

The Apple/Google duopoly absolutely needs to and will be broken up. They are no different to the Ma Bell telephone company who rightly got broken up in the 80s. You cannot deny somebody access to the electricity grid for example, and access to the app store is getting pretty damn close to that now too.

Whether they should get the 30% fee or less is a minor issue. The real issue at hand is not fees, it's access, which Apple/Google routinely discriminate against companies they don't like.

Forget the fee. That's a red herring. Access to all is what is really the issue.

 

[neuropsychguy]

I refuse to believe Apple’s hardware margins are only 30%. Their computers would be a lot cheaper if they were.

I didn't make the number up: https://www.washingtonpost.com/busi...44088d135f2_story.html?utm_term=.d25237a6d0d0

While not specific to hardware margins, more about Apple's net margins are discussed in the following two posts/articles.

https://daringfireball.net/linked/2019/01/03/regarding-apples-gross-margins

https://www.cnbc.com/2019/01/29/apple-discloses-services-margin-for-the-first-time.html

Those are all gross margins. Services are about 63% gross margin. Overall Apple gross margins are around 38%. This leaves hardware < 38%. The WaPo article states 34%, which is why I wrote "low 30%" (meaning low 30s, which 34% is).

If we move into net margins - they are around 20-22%. Hardware net margins will be lower than average net margins so are lower than 20%.

Apple has some wiggle room to decrease consumer prices of hardware (and services) but it's not nearly as much as some online critics believe. Services having high margins, however, can allow Apple to keep hardware prices lower than they otherwise would be to maintain overall margins. It might not be a lot of money but maybe a MacBook Pro costs $1400 instead of $1500 because Apple's services have high margins.

We saw something like this when Apple shifted away from charging for new OS X versions (in 2013). Apple built the price of software development and future support/development into their hardware costs. Apple could just as easily supplement some hardware costs with service revenue. Or, they could build service costs into their hardware and offer more services for "free". That's not likely to happen because services have terrific (if you're Apple) margins. Services are now why Microsoft is doing so well again (Azure, Office 365, etc) and why Amazon (AWS) is as profitable as it is (https://finance.yahoo.com/news/why-...web-services-and-profitability-181247737.html).

 

[macjunk(ie)]

Well....you are playing roulette if you buy a Macbook without AppleCare these days. I am pretty sure the number of people buying a Macbook of any sort without AppleCare has drastically reduced, given Apple's performance on reliability these days.

Not to mention, going for fully sealed laptop designs have no doubt helped to boost AppleCare sales as customers have even less confidence of fixing a broken laptop from elsewhere.

At these prices, AppleCare should have been included in the price of these machines but I don't have much hopes for the conniving Apple of today. Like everything in the US, the balance is heavily tilted in favour of shareholders and corporate weasels rather than the customers.

 

[macfacts]

I think it’s hilarious people are so against Apple pursuing services. A $14B/quarter run rate puts them at $56B annually for services.

That’s more than eBay ($10.74B), Salesforce ($13.28B), PayPal ($15.45B) and Netflix ($15.79B) combined...

When apple care is part of services, that isn't something to brag about

 

[Wide opeN]

Apple definitely is shifting it's focus. How much so, remains to be seen.

 

[Classie]

And this is why Apple is pushing into services

 

[miscend]

Good lord, are you really trying to equate the duopolistic operating system and app stores of Apple/Google (99.9% of the market) to companies who make video games? A smartphone is a completely different class of product essential to everyday life than a video games console. Everybody has and uses a smartphone. By contrast, almost everybody doesn't play video games and they are not even close to essential for daily life and functioning in the modern world.

The Apple/Google duopoly absolutely needs to and will be broken up. They are no different to the Ma Bell telephone company who rightly got broken up in the 80s. You cannot deny somebody access to the electricity grid for example, and access to the app store is getting pretty damn close to that now too.

Whether they should get the 30% fee or less is a minor issue. The real issue at hand is not fees, it's access, which Apple/Google routinely discriminate against companies they don't like.

Forget the fee. That's a red herring. Access to all is what is really the issue.

That's irrelevant. Video game makers are bound by the same laws as Google and Apple. Smart phones are not essential for everyday life.

Apple and Google possibly might be a duopoly but they have very limited market power, which is why competition authorities around the world haven't gone down hard on them. Under current rules the criteria for authorities to act depends on how much market power you wield. In the market for smartphone operating system having two main operating systems (rather than dozens of incompatible smartphone operating systems) is actually very beneficial to consumers as well. Too much choice is not always a good thing.

 

[miscend]

I didn't make the number up: https://www.washingtonpost.com/busi...44088d135f2_story.html?utm_term=.d25237a6d0d0

While not specific to hardware margins, more about Apple's net margins are discussed in the following two posts/articles.

https://daringfireball.net/linked/2019/01/03/regarding-apples-gross-margins

https://www.cnbc.com/2019/01/29/apple-discloses-services-margin-for-the-first-time.html

Those are all gross margins. Services are about 63% gross margin. Overall Apple gross margins are around 38%. This leaves hardware < 38%. The WaPo article states 34%, which is why I wrote "low 30%" (meaning low 30s, which 34% is).

If we move into net margins - they are around 20-22%. Hardware net margins will be lower than average net margins so are lower than 20%.

Apple has some wiggle room to decrease consumer prices of hardware (and services) but it's not nearly as much as some online critics believe. Services having high margins, however, can allow Apple to keep hardware prices lower than they otherwise would be to maintain overall margins. It might not be a lot of money but maybe a MacBook Pro costs $1400 instead of $1500 because Apple's services have high margins.

We saw something like this when Apple shifted away from charging for new OS X versions (in 2013). Apple built the price of software development and future support/development into their hardware costs. Apple could just as easily supplement some hardware costs with service revenue. Or, they could build service costs into their hardware and offer more services for "free". That's not likely to happen because services have terrific (if you're Apple) margins. Services are now why Microsoft is doing so well again (Azure, Office 365, etc) and why Amazon (AWS) is as profitable as it is (https://finance.yahoo.com/news/why-...web-services-and-profitability-181247737.html).

Based solely on the articles you posted, the high 30s to 40% seems way more likely to me. These are also company-wide gross margins so they include other costs such as R&D and salaries etc etc. And these figures are all educated estimates at best, companies are usually creative with their accounting, for example they will exaggerate R&D costs to get some tax relief. Apple pay very little tax worldwide so we know they have good accountants.

Anyway in many cases an Apple computer is more than 30% dearer (more expensive) than a similarly specced computer from a competitor. And you can get SSDs and RAM for half the price Apple sells them for if you shop around. But I agree that margins on certain products like the baseline iPad, Apple TV and iPhone XR are almost certainly lower.