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Apple Services is bigger than you think

Charting Apple's growing Services business


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Today we are looking at Apple - the most valuable company in the world.

Apple is huge!

In 2022, Apple had net sales of $394.3 billion dollars.

  • 52% of it came from iPhone

  • Combined 17.6% came from Mac and iPad

  • 10.5% came from Wearables, Home and Accessories (so things like Apple Watch, Airpods)

  • And ~20% came from Services

While 20% may seem small, when you multiply that with Apple’s scale - its massive.

To give you a sense of comparison, Apple’s revenue from Services alone was larger than whole of Nike and McDonald’s combined.

I know they are different businesses, but it gives you a perspective of just how big Services has already become.

What’s counted under services? A whole host of things

  • Revenue from App store

  • Advertising - Apple is going after it in a big way

  • Apple Care - fee based support, coverage for damage etc.

  • Cloud services - the $ you pay for additional storage

  • Payment services like Apple Card and Apple Pay

  • Subscription services like Fitness+, News,+ Apple TV+, Music

Out of this, Advertising is the most interesting.

While its currently relatively small (~$5B), many claim that Apple’s recent privacy crackdown was to weaken the ad-tech companies like Meta and instead push its own advertising to consumers (LINK)

Services, as a whole, is also far more profitable to Apple.

Its targeted towards its current installed base of customers using iPhone, Mac etc. so Apple has to spend far less on marketing.

Also Services are much higher gross margin, as they are mainly digital or software businesses compared to products like iPhone which require expensive manufacturing.

In 2022, Gross Margin% for services was twice that of products (~72% vs 36%).

So while Services accounted for 20% of sales, they accounted for 33% of gross margin.

Expect Services to play an increasingly larger role in Apple’s future.

In another news, we have recently setup a page on Linkedin.

I know most of you all swear by Twitter but if you hang out there too, do visit us and give us a follow - Will help us get visibility on that platform.

You can view some more analysis and charts, which doesn’t always make it to the newsletter. The posts there are meant for quick consumption.

That’s all for this week. Thanks for reading! 👋

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