Apple’s endeavours in the services sectors have been successful. The most popular of course being Apple Music which is one of the most popular music streaming services – treading in the same water as Spotify at close proximity.
The company also launched its video streaming service Apple TV+ with dozens of original TV shows and movies. However, Apple is also reportedly planning to buy old content – movies and TV shows – to improve its offering.
Investors have shown a lot of interest in Apple’s services sector. Apple has a very effective method of selling its products – its services lock users into its ecosystem. Investors see this “ecosystem” as an important asset in improving Apple’s services sector.
Wall Street reportedly thinks that by offering more services, Apple will be able to sell more hardware. Evercore’s ISI analyst Amit Daryanani thinks that Apple’ services sector can generate more than $100 billion in revenue in the fiscal year of 2024.
“Apple has announced numerous services offerings in the past year (Card, TV+, Arcade), which should drive higher [average revenue per user] and keep services growth elevated,” wrote Daryanani.
He further adds, “Higher services mix should push gross margins higher and help smooth cyclicality. In addition, Apple continues to build its base of subscription services, which helps make the case for a higher multiple given the recurring nature of the cash flows…Net/net, services remains an underappreciated growth lever especially given the shift in growth towards monetization and subscription based model.”
Apple is continuing to make its services deals sweet by offering Apple TV+ free with every Apple device purchase. Students also receive a good 50% discount of Apple’s services.
“While enterprise customers account for only [about ] 12% of total iPhone sales, we think the installed base is large enough to make this a compelling market.”, writes Daryanani.