Market Overview

What's Driving The Ramp In Apple's Services Revenue?

What's Driving The Ramp In Apple's Services Revenue?

Apple Inc. (NASDAQ: AAPL)'s growth in its Services business is a well-known story, but what's powering the growth is less known. A Morgan Stanley analyst said they have the answer.  

The Analyst

Morgan Stanley's Katy Huberty maintains an Overweight rating on Apple's stock with an unchanged $200 price target.

The Thesis

Apple's Services segment includes the following businesses:

  • App Store.
  • iTunes.
  • Apple Music.
  • Apple Pay.
  • AppleCare.
  • iCloud.
  • Licensing revenue.
  • Other software.

The combined segments posted a 31-percent growth rate in Apple's fiscal second quarter, which marks an acceleration from 27-percent growth in the December quarter. 

In a regulatory 10-Q filing, Apple said the strength in Services is attributed "primarily to licensing, App Store and AppleCare," Huberty said. The lack of accompanying detail makes it difficult to quantify the contribution of each individual business, the analyst said. 

Fewer than half of all Apple users pay for at least one service today, which leaves a "significant low-hanging fruit," Huberty said. It would be reasonable to assume Apple will achieve its target of doubling Services revenue in fiscal 2019, which is one year earlier than Cupertino initially guided in January 2017. 

Here are Huberty's takeaways on Apple's Services segment: 

  • The largest absolute dollar contributors in the March quarter were licensing/search payments and the App Store.
  • The App Store generated $3.4 billion in revenue.
  • The App Store is growing in-line with the overall Services business.
  • Licensing, Search and Other generated nearly $1.9 billion.
  • Licensing/Search and the App Store are the two highest-margin businesses in Services.
  • ApplePay grew at 116 percent, Apple Music grew at 69 percent and iCloud grew at 49 percent.
  • These lower-margin businesses require investments in data center infrastructure and/or content.

Price Action

Apple shares were trading down 0.85 percent at $187.72 at the time of publication Friday afternoon. 

Related Links:

Morgan Stanley Looks At The Good And Bad From Apple's Q2

As iPhone Momentum Slows, This Analyst Says Apple Will Find Revenue Growth In Services

Photo courtesy of Apple. 

Latest Ratings for AAPL

Oct 2019MaintainsEqual-Weight
Oct 2019MaintainsOutperform
Oct 2019UpgradesNeutralBuy

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings

Posted-In: App Store Apple Music Apple PayAnalyst Color Price Target Reiteration Analyst Ratings Tech Best of Benzinga


Related Articles (AAPL)

View Comments and Join the Discussion!

Latest Ratings

ELMDDougherty & Co.Initiates Coverage On12.0
MRNSCantor FitzgeraldAssumes7.0
MNRLCapital One FinancialInitiates Coverage On23.0
SONVertical GroupUpgrades
UNPMorgan StanleyMaintains136.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at

JPMorgan: Verizon On 'Stable Footing' As 5G Opportunity Crystallizes

Helios And Matheson's Terrible Week Puts MoviePass' Future In Doubt