Apple Will Lean More on Subscriptions as iPhone Sales Drop
(Bloomberg) -- After reporting its toughest quarter since 2001 on slowing smartphone sales, Apple Inc. is eyeing services like Apple Pay and music that come on its gadgets to help drive growth: The company aims to increase the number of subscriptions to half a billion by 2020, from 360 million now.
Apple shares rose 5.5 percent in extended trading on Tuesday.
Loup Ventures, Gene Munster
“Despite a troubled quarter for iPhone sales, mostly in China, Apple’s ecosystem is stronger than ever, and the company is positioned to return to sustainable mid-to-high single-digit revenue growth in Dec-19 after what will likely be a 5% decline in FY19.”
“Decelerating App Store subscription growth was a focus on the call. While subscription growth declined to 33% y/y vs 50% last quarter, the company has consistently added 30 million paid subs each of the last four quarters.”
“Apple as a Service is the notion that the company is transitioning from primarily manufacturing and selling devices to maintaining and satisfying a large and growing customer base with ever-improving hardware and an increasing portfolio of software services. Growth of the installed base of 100 million devices to 1.4 billion, in combination with 19% growth in Services revenue and 33% growth in paid subscriptions all represent confirmation of the Apple as a Service theme.”
“Continue to expect Apple will be the best performing FAANG stock in 2019.”
IG Asia, Jingyi Pan
“It is worth noting that the move towards other segments continues to bear fruit. Both the services and the newly structured wearables, home and accessories segments saw revenue growth accelerating, contributing to the rise in Apple shares after-hours."
Raymond James & Associates, Chris Caso, Melissa Fairbanks
"Apple did disclose Services margins for the first time -- which were higher than we had been modeling -- but that means iPhone margins were worse. Sentiment on the stock is now solidly negative, which should help it find a bottom, and we do think the stock will eventually be buyable into a 2020 5G cycle."
Morgan Stanley, Katy Huberty et al
"Many of the standalone Services segments performed well in the quarter, with App Store, Apple Pay, Cloud Services and App Store search ads all reaching quarterly revenue records."
"We believe there is upside bias to our 62.7% Services gross margins estimate in FY19 as fixed cost businesses, like iCloud, scale and China App Store revenue growth re-accelerates."
Mirabaud Securities, Neil Campling
The market is trying to focus on shifting to services as Apple’s core driver, but a 19% growth rate for this new key segment “isn’t as high as you might expect.”
Services growth slowed from 27% y/y in the September quarter and 30% in the June quarter, Campling said.
“Investors need to factor in lower services growth than they’d previously hoped,” he said, citing the impact from a lack of game approvals in China between March and mid-December 2018.
“And as companies such as Netflix and Spotify begin to circumnavigate the 30% Apple ‘tax’ through the App store, this services growth rate could well shrink further, rather than become the new key investment growth driver as consensus expects.”
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