Zhitong Finance APP has learned that a large portion of Apple’s (NASDAQ:)(AAPL.US) total revenue comes from its services business, including $78.1 billion in fiscal 2022 and $20.8 billion in the first quarter of fiscal 2023. quarterly revenue records. While many attribute Apple’s current valuation of more than $2.3 trillion to this segment, some worry that parts of the services business are slowing, possibly permanently.
However, investment firm Bernstein doesn’t think so. The company’s analyst Toni Sacconaghi noted that while growth in Apple’s services business has slowed for six straight quarters and gross margins fell last quarter, any slowdown is likely to be cyclical. Yes, especially in advertising and app store services, he expects to return to growth going forward.
“Apart from these two areas (advertising and the App Store), Apple’s other services business has seen relatively steady revenue growth, with an average growth rate of 15% over the past 13 quarters,” Sacconaghi said. In addition to stores, Apple’s services business also includes iCloud, AppleCare, Apple TV+, Apple Pay, Apple Arcade and Apple Card.
Of course, advertising and app store revenue is considered to be a large part of Apple’s services business revenue, which may reach about 60%, and profits may also account for 75%. While ad revenue has fallen sharply in recent quarters, there are signs that App Store revenue is recovering.
Earlier this month, Bank of America analyst Wamsi Mohan said, citing third-party data from SensorTower, that Apple’s App Store revenue had grown to $2.7 billion this year as of Feb. Total downloads for the iPad fell 0.7% year-over-year.
Bernstein’s Sacconaghi noted that app store revenue growth has averaged about 4% over the past four quarters and that revenue growth should hit “low double digits” over time as subscription services Strong revenue growth made up for revenue weakness in its gaming segment.
Sacconaghi believes Apple’s services revenue will grow 12% to 15% over the next three to five years, driven primarily by continued growth in its existing user base of more than 2 billion active users, price increases, and the introduction of new products such as potential Audience Network) could bring in an additional $5 billion to $10 billion in revenue.
Of course, Apple’s services business also has corresponding regulatory risks. Because the companies in the App Store often charge commissions of up to 30% for app downloads or purchases, the App Store is scrutinized worldwide.
In addition, there are concerns that Apple’s deal with Google to become a de facto search engine for its devices could be at risk given the antitrust case against Google’s (GOOGL.US) search business.
While global economic uncertainty is likely to persist for some time — due in part to the throes of inflation and uncertainty caused by the Russia-Ukraine conflict — it’s clear market concerns about Apple’s services business are cyclical, Sacconaki said. Promising, likely paving the way for the company’s revenue growth later this year and into 2024. Earlier, it was reported that Apple had also made a major breakthrough in a secretive project to develop a continuous blood glucose monitoring system.