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Apple’s growth strategy is hiding in plain sight

Apple Revenue Services

Apple finds itself in a rather unique position; it just delivered the most profitable quarter in corporate history and all anyone can focus on is what Apple can do to generate even more revenue in the future. Of course, heightened expectations are not wholly unwarranted given Apple’s track record for innovation.

Consequently, it’s not uncommon to hear analysts talk about what’s next for Apple and what the company needs to do to keep investors happy and its cash hoard growing. While some believe upcoming iPhone innovations will drive future revenue growth, others take the position that a big and bold acquisition (i.e Tesla or Netflix) is needed.

But hiding in plain sight, right there on the face of Apple’s quarterly report, is a growth vector that’s curiously being ignored by analysts and pundits alike – services.

MUST SEE: 8 reasons I still can’t leave the iPhone and switch to Android

In Apple’s most recent fiscal year, revenue derived from Apple services, from Apple Music to Apple Pay, checked in at $19.9 billion. In the most recent quarter alone, services-based revenue checked in at $6.1 billion, a 15 increase year over year. And looking ahead, there’s no reason to assume that this growth will subside anytime soon.

As it stands now, Apple has more than 1 billion active devices in circulation. In other words, Apple has a tremendously large installed base of users that most other companies would kill for. The potential to leverage this growing user base into new revenue streams is immense.

Just look at Apple Music, for example. Just four months after the service began collecting revenue, it already has more than 10 million subscribers. That’s about $1.2 billion you can already add to Apple’s annual bottom line right there. Once Apple Music catches up to Spotify, and there’s no indication that it won’t, Apple will be generating $2.5 billion a year in revenue without batting an eye. And that’s just scratching the surface of what Apple may generate in services-based revenue in the future.

Apple Pay is growing slowly but surely, and is poised to really kick into high gear once it opens up in China. Not only that, but revenue from the App Store continues to climb into the stratosphere as well. Remember, Apple recently boasted that “in the two weeks ending January 3, customers spent over $1.1 billion on apps and in-app purchases.” Not too shabby for two weeks worth of business.

Once we add in iTunes, licensing, AppleCare, iCloud revenue and more, it becomes readily apparent that revenue from Apple services is poised to explode in the years ahead.

“[Services] is an unbelievable asset for us,” Tim Cook said during yesterday’s earnings conference call. “Because our install base has grown quickly, we have also seen an acceleration in … what has become one of the largest service businesses in the world.”

Indeed, Apple CFO Luca Maestri spent a considerable amount of time on this topic during Tuesday’s earnings conference call.

The vast majority of the services we provide to our customers, for instance, apps, movies and TV shows, are tied to our installed base of devices, rather than to current quarter sale.

Revenue from the App Store increased 27% and the number of transacting customers grew 18%, also setting an all-time record. Among our customers who purchased apps and content from our iTunes stores, the average amount spent per customer reached an all-time high in the December quarter.

Looking ahead, it’s clear that Apple appreciates how lucrative its services truly are. Indeed, it’s why Apple was so intent on rolling out a TV subscription service. While iPhone sales will arguably increase in the months ahead, the reality is that iPhone growth can’t continue to increase in perpetuity. Still, if Apple can start generating even more services-based revenue from existing users, the company’s growth trajectory looks mighty impressive.

A life long Mac user and Apple enthusiast, Yoni Heisler has been writing about Apple and the tech industry at large for over 6 years. His writing has appeared in Edible Apple, Network World, MacLife, Macworld UK, and most recently, TUAW. When not writing about and analyzing the latest happenings with Apple, Yoni enjoys catching Improv shows in Chicago, playing soccer, and cultivating new TV show addictions, the most recent examples being The Walking Dead and Broad City.

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