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Explosive Apple Services growth expected to be main engine for future revenue expansion

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Apple may not be reliant on massive seasonal sales of the iPhone going forward for steady revenue growth, if a new analyst report is accurate.

In a note seen by AppleInsider, Katy Huberty from Morgan Stanley predicts that Apple's Services expansion will add up to more than 50 percent of revenue growth over the next five years. Apple's Services revenue incorporates the App Stores, AppleCare, Apple Music, Apple Pay, and iTunes.

In its most recent quarter, Apple posted $8.5 billion in revenue in its services category, up 13 percent year over year. At present, services revenue has grown to about $30 per active device — although Huberty believes that only 18 percent of the users account for the spending.

"Over the last five years, the vast majority (86 percent) of Apple's 8 percent annual revenue growth was driven by iPhone sales," wrote Huberty. "It is through monetization of Apple's Services business that we see the company still generating mid single digit revenue growth."

As a result of the Services revenue expansion, Morgan Stanley has set a new price target for Apple stock at $203.

Earlier in March, Amit Daryanani from RBC had similar thoughts on the matter. Daryanani said in that report, that any predicted iPhone X softness in the present quarter would be offset by Services growth.

Apple's services revenue growth went mostly un-noticed until Apple CEO Tim Cook said in 2016 that he predicted that the segment alone would be the size of a Fortune 100 company before the end of 2017. Apple hit that goal on August 1, 2017, catapulting into 97th place ahead of Facebook's entire business.

Apple's future moves in services include a number of video efforts, with a suspected growth of video content budgeting swelling 54 percent every year through 2022 up to $1 billion in total. Any video on demand service anchored by these videos is expected to have a head start with about 75 million subscribers, according to recent predictions on the matter.