You define a company by the product category that constitutes the majority of its revenues. This is the biggest challenge with Apple Inc. (NSDQ:AAPL). As of Q2 2016, the iPhone category accounted for ~65% of Apple’s total revenues. This is why the ~16.3% y/y decline in iPhone units sold was concerning.
Nonetheless, we also need to define Apple’s growth by its fastest growing category. For Apple, that category is not the iPhone or iPad or Mac but Apple Services. Apple Services constitutes revenues from Internet Services, AppleCare, Apple Pay, licensing and other services.
The $5.991 billion sales from Apple Services’ accounted for ~12% of Apple’s total revenues in Q2 2016.
Making Services Apple’s second largest product category by revenues.
In addition, Apple’s Services revenue grew by 20% y/y. Ony second to Other Products, which grew by 30% y/y. In comparison, the iPhone, iPad and Mac categories declined by 18%, 19% and 9% y/y, respectively.
Therefore, to evaluate Apple moving forward, we need to evaluate the growth potential of Apple Services.
Why Apple Services will continue to be one of Apple’s growth catalysts
“Now that we have reached this milestone of 1 billion active devices, we felt this would be a great opportunity to share more information on what has become one of the largest service businesses in the world.” – Tim Cook, Apple’s Q1 2016 earnings call transcript.
First, Apple is and has always been in the “user experience” business. From combining a typewriter with a TV monitor to putting a 1,000 songs in people’s pockets, Apple has always attempted to perfect user experience.
Therefore, whether Apple Services is categorized as an add-on or as a standalone, all that matters is user experience.
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