Apple Inc (AAPL)

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Apple’s Services Business Could Surprise Investors Once Again
By: Eric J. Savitz | March 2, 2021

Apple’s growth strategy in recent quarters has been driven in part by expansion of its services business, which includes subscription offerings in music, video, gaming, and fitness, among other things. In the December quarter, services revenue jumped 24% to $15.7 billion. And the early signs on services revenue for the March quarter are looking good, as well.

Evercore ISI analyst Amit Daryanani wrote in a research note Tuesday that Apple (ticker: AAPL) App Store revenue grew 30% in February for “another strong month.” He estimates that App Store developer revenue was $4.4 billion in the quarter, up 30%, after gains of 40% in January and 31% in December.

The analyst notes that Wall Street models call for services growth to decelerate to 16% in the March quarter, but he thinks the ongoing strength in app downloads point to “an increasing likelihood of upside to consensus estimates.”

Daryanani estimates that Apple should be able to grow services at a 19% compounded growth rate through the September 2024 fiscal year, at which point revenues from the segment would top $100 billion. He thinks that will include $29 billion from Apple Music and $6 million from Apple Pay.

He also expects Apple Arcade and Apple TV+ to gain transaction over the next five years, with 80 million to 90 million subscribers each. At $100 billion, he adds, services would be 30% of Apple’s overall revenue and 45% of gross profit.

Daryanani maintains his Overweight rating and $163 price target on Apple shares.

Apple stock is down 1.4% Tuesday, to $126.00.

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