"The number of paid accounts on our digital content stores grew double digits and reached a new all-time high during the December quarter in every geographic segment," Apple chief financial officer Luca Maestri said on the earnings conference call with analysts last week.
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Not only does the steadier services business insulate Apple's earnings growth from the more cyclical manufacturing unit's swings – a point brought home by the 30% decline in Apple stock in 2015-2016 as iPhone demand in China slowed – it also boosts the company's stock multiple because software and internet services stocks routinely command high price to earnings multiples. Migrating the company to services has been among Apple's top goals for years. All that people 13 to 34 want is Apple products." Young kids and users are growing up now on Apple's platform. "The story for Apple is that 30% of the company is services and wearables. "Margins in services are going to continue to expand," Zino said. Add in stock buybacks and the number can easily support double-digit earnings per share growth by reducing the number of outstanding shares over which Apple's profit is spread. The services business can make Apple profit grow "high single digits with no growth in hardware," said Angelo Zino of CFRA Research.
Other analysts say their math works out close to the same way. "This is a big deal – suggesting that services (30%+ of gross profits, potentially growing 20%, with expanding margins) + buybacks (3%-4% per year) could drive 10%+ earnings per share growth for Apple, even with Hardware/other products growing at 0%." Bernstein's Toni Sacconaghi wrote in a note to clients. "Apple's ability to drive new customers, deepen penetration and introduce new services suggests that 15%-20% growth for the next few years may not be implausible," Sanford C. Given that not every year brings a new iPhone with a breakthrough innovation - incremental upgrades have become more common - let alone a catalyst like the 5G transition, analysts went to work trying to figure out what the services growth portends for Apple's future. And their 24% fourth-quarter sales growth dwarfs the 9.2% that iPhone posted in a strong quarter, helped by a new edition of the iPhone and the ongoing migration of existing users to faster 5G technology.Īlphabet traffic acquisition costs (TAC), the metric used to show how much the company pays other websites to acquire traffic, came in higher than Wall Street expected at $13.43 billion in the search giant's latest quarterly results, which were reported after the close on Tuesday.
Mac computer sales rose 25% in the last quarter on a much smaller base, while iPad sales declined. Services like iTunes, Music and Apple Pay, and especially referral fees from Alphabet for sending iPhone's Safari browser users to the Google search engine, are 16% of sales but 26% of gross profit. Tech stocks have been up ever since they reported."Īpple's iPhone business is about 70% of its product sales. "Tim Cook and Cupertino steadied the ship. "The services margin is a major tailwind, regardless of what happens to the iPhone," Wedbush analyst Dan Ives said.
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