Apple’s Inc. (AAPL) services which include Internet Services, AppleCare, Apple Pay, licensing and other services, have shown an impressive growth in the last few quarters. Apple services revenues have grown by 48.5% in the last three years from $4,260 million in the fourth quarter of 2013 to $6,325 million in the final quarter of fiscal 2016, as shown in the chart below.
Although Apple services revenues accounted for only 14% of the company’s total revenues in the recent quarter, Apple’s CEO Tim Cook emphasized the segment contribution to the company growth.
In Apple’s fourth quarter earnings report CEO Tim Cook said:
“Our strong September quarter results cap a very successful fiscal 2016 for Apple. We’re thrilled with the customer response to iPhone 7, iPhone 7 Plus and Apple Watch Series 2, as well as the incredible momentum of our Services business, where revenue grew 24 percent to set another all-time record.”
At the conference call on October 25, CEO Tim Cook dedicated much room to the company’s services performance. According to Mr. Cook, App store revenue continued to skyrocket while music revenue grew by 22% thanks to the growing popularity of Apple music. What’s more, the company sees very strong growth in transaction volume through Apple Pay, which is very popular in Japan, and also recently was launched in Russia and New Zealand and is coming to Spain in the next few months. According to the company, Apple Pay transactions in the recent quarter were up nearly 500% year-over-year.
As I see it, besides the very positive response to iPhone 7, iPhone 7 Plus and Apple Watch Series 2, Apple is well positioned to show better growth in the next few quarters due to the contribution of its fast-growing services business.
Apple Stock Performance
Year to date, the AAPL stock is up 5.9%, while the S&P 500 index has increased 3.3%, and the Nasdaq Composite Index has gained 2.9%. Since the beginning of 2012, the AAPL stock has gained 92.7%. In this period, the S&P 500 Index has increased 67.9%, and the Nasdaq Composite Index has risen 97.8%. According to TipRanks, the average target price of the top analysts is at $132.38, indicating an upside of 18.7% from its November 01 close price. However, in my opinion, shares could go higher than that.
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