Apple’s Services business is booming. And according to a new Morgan Stanely analyst report, that sector is only going to become an increasingly important part of Apple’s future.
Services, which includes iTunes, the App Store, Apple Music, iCloud, Apple Pay and Apple Care, among others, is already expanding rapidly. In Apple’s Q4 2018 earnings call, the company reported a 17 percent year-over-year increase and record revenues of $10 billion.
But Morgan Stanley analyst Katy Huberty wrote in a new research note (via Barron’s) that she expects the Services segment to expand significantly over the next few years — and end up largely the most significant driver of Apple’s continued success.
What the Future Holds
Huberty wrote that she’s confident that Apple’s “engaged iOS user base and broadening portfolio of Services” will allow the Cupertino tech giant to see sustained 20 percent growth over the next five years.
In calendar year 2023, the analyst expects Apple to rake in about $101 billion in Services revenue alone. For context, Apple reported Services revenue of $37.2 billion in fiscal year 2018 (and sold $112 billion in iPhones in that same period in the U.S.).
Compared to its competitors, Huberty sees Apple’s Services portfolio as a key advantage.
The App Store, iCloud, AppleCare and Apple Music are all expanding, and that’s a trend Huberty only expects to grow over the next five years. That’s mainly because these Services are extremely integrated into Apple’s hardware and provide a seamless alternative to third-party platforms.
All in all, the analyst likens her forecast of Apple’s Services to Amazon’s successes with its AWS revenues and profits.
In stark contrast to concern among investors and market watchers about Apple’s decision to stop reporting individual unit sales, Huberty expects a 24 percent uptick to Apple’s stock price — a forecast that flies in the face of other investment firm predictions.
Of course, it isn’t all clear sailing for Apple’s Services. Many competitors are well-entrenched in the market, including Amazon and Google parent company Alphabet. Chinese firms Alibaba, Baidu, and Tencent may also prove to be obstacles to Services growth.
But Apple may have a few tricks up its sleeve. The company is widely rumored to be working on a stable of original TV and video content. That may be tied to a future subscription platform which could include Apple Music and Apple News.
Interestingly, Apple may also offer that video content for free for users of its devices. That could mean that Apple’s TV subscriptions will already have a sizable potential audience when it launches.
This isn’t the first time that Huberty forecasted Apple’s Services sector becoming a critical component of the company’s growth. Back in March, the analyst predicted that Services will contribute more than 50 percent of the company’s total revenue growth over the next five years.