Services business key driver for revenue growth
As we can see in the chart below, Apple’s (AAPL) Services segment has increased its revenues exponentially over the last few years. Its revenues increased from $19.9 billion in fiscal 2015 to ~$24.3 billion in fiscal 2016 and $30.0 billion in fiscal 2017. Morgan Stanley (MS) analyst Katy Huberty has estimated that Apple Services could account for more than 50.0% of revenue growth in the next five years.
Apple Services’ revenues integrate revenues from several verticals, including Apple Music, App Store, AppleCare, iTunes, and Apple Pay. In fiscal 1Q18, Apple’s Services business generated revenues of $8.5 billion, a rise of 18.0% YoY (year-over-year). Huberty estimates each active device contributes $30 to Services and believes that 18.0% of total users could account for this spending.
Comparatively, more than 86.0% of Apple’s 8.0% annual revenue growth in the last five years was driven by robust iPhone sales. Morgan Stanley now has a 12-month price target of $203.00 for Apple.
Increase in paid subscriptions
Apple could double its Services revenues between 2016 and 2020. Paid subscriptions across Apple’s Services offerings exceeded 240.0 million at the end of fiscal 1Q18. At the end of fiscal 4Q17, the company had 210.0 million subscriptions, making the quarter ended December 2017 the fastest-growing quarter for Apple.