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How Apple’s Services Segment Performed in Fiscal 1Q17

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Revenue rose 18.0%

In fiscal 1Q17, revenue from Apple’s (AAPL) Services segment rose 18.0% YoY (year-over-year) to almost $7.2 billion, from $6.7 billion in fiscal 1Q16. The Services segment is now the third-largest revenue producer for Apple. It consists of revenue from iTunes, App Store, AppleCare, and Apple Pay.

Services revenue accounted for 14.1% of Apple’s total revenue in fiscal 3Q16, a rise from 10.1% in fiscal 3Q15. It accounted for 13.5% of total revenue in fiscal 4Q16 and 9.2% in fiscal 1Q17.

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Apple Music drove Services revenue in fiscal 4Q16

The Services segment has been Apple’s fastest growing business in the last few quarters. According to Apple Insider, Apple has more than 150.0 million paid customer subscriptions. It added that Apple Pay is accepted by 2.0 million small businesses.

Macquarie Research’s Ben Schachter expects Apple’s Services segment to account for 75.0% of its gross profit by fiscal 2021. The App Store’s gross margin is approximately 90.0%, followed by AppleCare, which has a margin of 70.0%. iTunes, iCloud, and Apple Pay have a gross margin of 64.0%.

Revenue from Services is expected to grow at a CAGR (compound annual growth rate) of 17.0% until fiscal 2021. In July 2016, Apple CEO (chief executive officer) Tim Cook said he expects the company’s Services segment to be as big as a Fortune 100 company in 2017.

Cook mentioned that Apple Music revenues grew for the third consecutive quarter in fiscal 1Q17. Apple Music is growing its subscriber base rapidly, but it still trails rival Spotify. Apple said that globally, Apple Music’s paid subscriptions have reached 20.0 million. That figure suggests a rise of 15.0% within three months, since the company reported 17.0 million paying Apple Music subscribers in September 2016.

Apple Pay grows in fiscal 1Q17

Apple Pay transactions have risen 500.0% YoY, driven by global expansion in countries such as Japan, New Zealand, Russia, and Spain. Apple Pay is now available in 13 markets.

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