sped up its push into subscription-based services, with new offerings in video streaming, gaming, news and credit cards. Add those ventures to the more established operations in music, cloud storage, apps, and service plans, and you have the makings of a very big business—maybe larger than investors currently expect.
In a research note Wednesday, Evercore ISI analyst Amit Daryanani laid out a path for Apple’s services arm to top $100 billion in revenue by 2024. He noted that Apple has averaged 20% growth in services over the last five years, largely because the number of iPhones and other devices in use has grown, rather than innovation. The new set of services, he thinks, should drive up average revenue per user and allow Apple to maintain—and potentially increase—services growth.
The bottom line is that Apple’s services business, which had largely been driven by the expanding base of iPhone users, is getting an extra boost from new offerings and innovation. That should make services a growing part of Apple’s revenue mix for years to come.
“Services remain an underappreciated growth lever especially given the shift in growth towards monetization and subscription-based mode[s],” he wrote. Daryanani thinks Apple can sustain 19% compounded growth through the September 2024 fiscal year, with 32% projected growth at Apple Music and 41% for Apple Pay. He thinks Apple Arcade and Apple TV+ can each reach 80 million-90 million subscribers by the end of 2024.
At $100 billion in revenue, services will account for 30% of Apple’s total, accounting for 45% of gross profits, up from 30% in 2019. Services revenue this year will be $55.8 billion, up from $46.3 billion in 2019, he projected.
Darayani doesn’t think Apple is out of new growth options, by the way. He sees health care, artificial and augmented reality, and advertising as potential focus areas.
Apple shares were up 0.6% Wednesday to $318.38, pushing the company’s market capitalization past the $1.4 trillion mark. The stock has more than doubled since the end of 2018, with a gain of 8.5% in the first few weeks of 2020.
Write to Eric J. Savitz at firstname.lastname@example.org