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Feature Story
Apple’s Services Growth Flywheel Continues To Strengthen
Nov 16, 2023 · forbes.com
However, concerns remain over the demand for Apple's new iPhone 15 and the company's concentration in China in regard to its iPhone supply base. Apple's stock is currently trading at a 7.76x P/S ratio, above its 5-year median P/S ratio of 6.59x, with the 8.0x a level that Apple has struggled to hold on to since spiking to it in 2020. Apple is also trading at a nearly 28.8x forward P/E ratio, another valuation level that it has struggled to hold on to.
Key takeaways
- Apple's Services segment has seen significant growth, with its share of revenue rising from under 15% five years ago to 22.2% at the end of September. The segment's annual run rate has increased from ~$40 billion to over $85 billion.
- Services growth has been broad based, with new revenue records across a range of different offerings. The segment has multiple growth outlets to lever in the future, from growth in paid subscribers, AI, and price hikes.
- Apple recently enacted some price hikes for News+, Arcade, and its One bundles, which could generate an additional ~$5 billion in annual revenue. However, there are concerns over the holiday launch trajectory of Apple’s new iPhone 15 and the company's concentration in China.
- Services is rapidly becoming one of Apple’s most important top-line segments, and arguably is the most important for Apple’s bottom-line, given its outsized role in boosting Apple’s gross margin. If Services continues to grow at its current rate, it could be generating approximately $164 billion in revenue by FY28.