Apple kicked off 2022 by becoming the first company to achieve $3 trillion market value. Its strong hardware upgrade cycle in 2021 is not the only contributor to hit that mark, the company’s Services business has grown drastically over the years. Wedbush analyst Danial Ives believes that the value of the Services business is $1.5 trillion.
Over a six-year span, Apple made its Services segment the company’s “linchpin”
Apple CEO Tim Cook has worked on boosting the company Services segment to increase the usage and market value of its hardware. In 2017, he said, “our goal is to double the size of the services business in the next four years”. Since then, the company has launched several Services to enhance users’ experience.
- Apple Music
- Apple Arcade
- Apple Card
- Apple Pay
- Apple Podcast
- Apple Cash
- Apple Music Voice Plan
- Apple Care+
In the Q4, 2021 earning report, the company’s Services segment saw 26% Y-o-Y growth in every Services category and every geographic segment with an all-time high of $18.3 billion in revenue. Ives estimates that Mr.Cook’s plan has been very profitable.
The linchpin to Apple’s valuation re-rating remains its Services business which we believe is worth $1.5 trillion in the eyes of the Street, coupled by its flagship hardware ecosystem which is in the midst of its strongest product cycle in over a decade led by iPhone 13. The Services business is further monetizing the Apple golden installed base and poised to reach $100 billion+ annual revenue by 2024.
In 2020, the tech giant launched Apple One bundles for users in its ecosystem to enjoy multiple services for a single and discounted price. At the Q4 2021 earnings call, Apple CFO Luca Maestri said:
We continue to see increased customer engagement with our services. The number of paid accounts on our digital content stores grew double digits and reached a new all-time high during the September quarter in each geographic segment. Also, paid subscriptions continued to show very strong growth. We now have more than 745 million paid subscriptions across the Services on our platform, which is up more than 160 million from last year and nearly 5 times the number of paid subscriptions we had less than five years ago. And finally, as Tim mentioned earlier, we’re adding new services that we think our customers will love. And we continue to improve the breadth and quality of our current services offerings.
In his new note to investors, Ives also mentioned that the tech giant sold over 40 million iPhone 13 models in the 2021 Holiday season. Once again China proved to be a lucrative market for the company which pushed demand by 12 million units than expected numbers.