Apple’s services division has hit a major milestone by reaching $100 billion in annual revenue, making it the second-largest division after the iPhone. In the recent earnings report, Apple announced that its services revenue had reached nearly $25 billion, showing a 12% growth on an annual basis. Apple’s CFO, Luca Maestri, highlighted the significance of this achievement, emphasizing the phenomenal growth the company has experienced in just a few years.
The services unit at Apple includes a variety of offerings such as advertising, search licensing revenue from Google, warranties like AppleCare, cloud subscription services like iCloud, content subscriptions such as Apple TV+, and payments from Apple Pay and AppleCare. The gross margin for the services division was an impressive 74% in the September quarter, significantly higher than Apple’s overall margin of 46.2%.
Over the years, Apple has compared its services business to the size of Fortune 500 companies to illustrate its scale. Based on its most recent run rate, Apple’s services business alone would rank around 40th on the Fortune 500 list, surpassing companies like Morgan Stanley and Johnson & Johnson. The appeal of Apple’s services division to investors lies in the recurring nature of many subscriptions, providing a more predictable revenue stream compared to hardware sales.
While Apple’s fourth-quarter results exceeded Wall Street expectations for revenue and earnings, the net income was impacted by a one-time charge related to a tax decision in Europe. Despite the positive performance, the stock fell by 2% in extended trading. The company remains confident that sales from services will continue to grow alongside its expanding user base, as customers are more likely to engage with Apple’s subscriptions and services after purchasing an iPhone.
Apple emphasizes the growth potential of its services business, highlighting the increasing number of active devices and paid subscriptions. However, questions remain about whether the services division can sustain its rapid growth rate in the long term. After experiencing a drop in growth to 9.1% in fiscal 2023, the services unit recovered to about 13% in fiscal 2024. Apple aims to continue investing in its services and introducing new features to attract more customers to its offerings, such as News+, Music, and Arcade.
As Apple looks towards the future, the company remains focused on expanding its services portfolio and enhancing its subscription offerings to drive growth and retain customers. With a strong foundation in place and a commitment to innovation, Apple’s services division is poised to maintain its position as a key revenue driver for the tech giant.
