Apples services business grows 18% as iPhone sales stall

Apples services business grows 18% as iPhone sales stall

Apple just announced their earnings for Q1 2017. The companyreported $52.9 billion in revenue with EPS of $2.10, which slightly beat consensus estimates of $2.02.

But perhaps more importantly, thisquarters revenue from services was $7.04 billion, which represents18 percent growth year-over-year for the category, the same YOY growth percentage seen last quarter.

And while revenue from services last quarter was a little betterat $7.17 billion, this is mainly due to the large sales bump Apple gets from the holiday season. In fact, revenue from services this quarter is only -2 percent compared to last quarter, which is insane when you consider that revenue from iPhone sales this quarter are -39 percent compared to last quarter.

Essentially services are a category where revenue can stay relatively stable quarter to quarter, even when hardware revenue falls dramatically, which is something that excites Wall Street.

Servicesare also playing a bigger role than ever when it comes to Apples bottom line. Last quarter revenue from services consisted of 13.3 percent of Apples total revenue. This is a nicebump from the year-ago quarter, where services accounted for 11.8 percent of total revenue.

While this 13.3 percent of total revenue onlycomprises a small portion of Apples overall revenue, its a product category to which many investors are paying close attention.

This is because its a way for the company to continue growing top line revenue even if hardware sales are stalling, by monetizing services running on hardware thatthe companys already sold.

These services include things like the App Store, iTunes Store, Apple Music Subscriptions, Apple Pay, iCloud Storage Costs, AppleCare and more.

Essentially, instead of generating revenue from a customer every two years when they buy a new phone, Apple wants tobe in a position to makemoney from them every single month, regardless if they buy a new hardware device or not.

Plus,a lot of Apples services offerings are re-occurring, like Apple Music, iCloud Storage and, to some extent, Apple Pay. This means the company can expect to generate monthly revenue indefinitelyfrom all users who are subscribed to these services, which is something that Wall Street loves.

Of course, other services like the App Store still generate tons of revenue on a consistent basisforApple, even if it isnttechnically recurring. In December alone of last quarter the App Store saw $3 billion in purchases, making it the best month ever for the store.

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