In Apple’s Q3 2023 earning call, Services revenue for the quarter was booked in at $21.2B*, an 8% increase on the same period last year. But there is a lot more room for growth in this number as Apple continues to boost its services offerings.
Apple now boasts in excess of a billion paying iCloud subscribers. That’s about four times the number of Netflix subscribers. And even if you combine the number of Disney+, Netflix and Amazon Prime subscribers together, you’re still about 300 million paying subscribers short of Apple’s numbers.
Of course, that’s not the full story. The cheapest Apple subscription is just $0.99. If we take that as a baseline, Apple rakes in a billion dollars per month. But we already know that last quarter, Apple made about seven times that number each month, on the back of an 8% increase for the same time last year.
That means, people are paying for higher value subscriptions as well as spending money at App Stores where Apple collects a significant cut of sales, taking out AppleCare and using Apple Pay.
If we look at Apple’s iPhone sales, we know that they follow a seasonal pattern. Across the first quarter of the year, sales are take a dip, presumably because of the holiday season. Quarters two and three are reasonably flat although we often see s small uptick in sales through Q3. I’m guessing this is because sales get a little push to run stock down before the release of a new iPhone which comes in the final quarter of the year – usually in mid-to late September.
Apple’s largest revenue source, the iPhone, does not delver Apple a consistent revenue stream. So, if an annual iPhone release goes poorly, it can have a significant impact on the entire business. While the risk of this happening is low, the impact would be major.
Services revenue is a totally different beast. Subscription revenue is not subject to the same seasonal variability. Once a subscriber commits, Apple can pretty much rely on that income coming in month after month.
Aside from the odd blip, that quarterly revenue continues to grow. And while the revenue is about half that of the iPhone, it is steadily growing and doesn’t fluctuate up and down seasonally.
Apple’s quarterly revenue for Q3 2023 was about $81.8B. Services accounted for just over a quarter of that revenue and is almost delivering the same dollars to Apple’s bottom line as the iPad, Mac, wearables and home products combined. And, one suspects, with much greater margins.
Apple will continue to deliver excellent and innovative hardware. Its healthy cash balance means it can continue to invest heavily in research and development, as we have seen with the Vision Pro. That hardware is a gateway to engaging customers to become subscribers. And once they are subscribers, it becomes challenging to leave Apple’s ecosystem.
The ongoing growth and stability of its Services revenue stream gives Apple the stability it needs to develop its Next Big Thing, confident that it doesn’t have to bet the company’s long-term viability on a moon shot project.
*All dollar values in the article are in USD.
Anthony is the founder of Australian Apple News. He is a long-time Apple user and former editor of Australian Macworld. He has contributed to many technology magazines and newspapers as well as appearing regularly on radio and occasionally on TV.