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Apple Focusing on Services Amid All Round Growth

Posted on Monday, May 3rd 2021

Earlier last week, Apple (Nasdaq: AAPL) announced its second quarter results that surpassed market expectations. Despite the pandemic, the company continues to see strong growth across its products and services line. It reported double-digit growth across all of its revenue categories in the quarter.

Apple’s Financials

Apple’s second revenues grew 54% over the year to $89.6 billion, significantly ahead of the market’s forecast of $77.3 billion. EPS grew 35% over the quarter to $1.40, surpassing the Street’s forecast of $0.99.

By segment, iPhone revenues grew 65.5% to $47.94 billion. Mac sales grew 70.1% to $9.1 billion and iPad sales grew 78.9% to $7.8 billion. Revenues from Wearables grew 24.7% to $7.8 billion. The services segment revenues grew 26.7% to $16.9 billion.

Apple did not provide any forecast for the current quarter. The market estimates revenues of $72.65 billion for the quarter with an EPS of $0.97 and revenues of $350.55 billion with an EPS of $4.98 for the year.

Apple’s Product Upgrades

Apple continued to upgrade its services offerings. Recently, it announced the Apple Card family, which reinvents how users can share credit cards and build credit together. The service will be available in the US in May and will allow up to five people to co-own an Apple Card and share and merge their credit lines while building credit together equally. Apple Card Family will enable parents to share Apple Card with their children, while allowing them to manage spending by adding spending limits and controls to drive safe financial habits. The service will make it easier to track spending through the iPhone with a single monthly bill.

Earlier this month, it announced the launch of Apple Podcast subscriptions. The service will be available in over 170 countries and will allow users to discover premium content from creators and storytellers, independent voices and premier studios such as TV, Pushkin Industries, and leading media and entertainment brands, including NPR, and many more. The subscription service will offer ad-free listening, access to additional content, and early or exclusive access to new series. The subscription will be available for an annual charge of $19.99 a year.

Apple is aware of the growing concerns around user privacy. It continues to develop industry-leading tools that protect users’ privacy. Recently, it launched App Tracking Transparency, which is now available as an iOS 14.5 software update. Developers will now be required to ask users via a pop-up alert if they can track their activities across other companies’ apps and websites. People who opt-out will see fewer personalized ads. The user will be allowed to change their mind after making a selection through a settings change. But a lot of developers, including companies like Facebook, have complained of loss of targeted ad revenues due to Apple’s policy change. Apple is defending the move by making users aware of how the apps are collecting information about users to create a digital profile that is available to be sold to others.

Apple’s push to the services segment is seeing strong results. It now has more than 660 million paid subscriptions across the services on its platform, adding 40 million from the previous quarter. The addition of new services will continue to boost growth in this segment in the coming quarters.

Its stock is trading at $131.46 with a market capitalization of $2.21 trillion. It touched a 52-week high of $145.09 in February and a 52-week low of $53.15 in April last year.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.

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