Apple's services segment maintains explosive growth in Q4

Weren’t all of Apple’s services declared by tech blog armchair experts to be substandard and unable to compete? Apple TV+ was declared a monumental failure that could not compete with Netflix, Disney+, et al. Spotify was declared to the standard and Apple Music useless. Apple News was also labeled a failure.

Yet all of these failures drove up paid subscriptions and generated double digit revenue growth. I don’t get it. How could the tech blog experts be wrong?

lkrupp said:

Weren’t all of Apple’s services declared by tech blog armchair experts to be substandard and unable to compete? Apple TV+ was declared a monumental failure that could not compete with Netflix, Disney+, et al. Spotify was declared to the standard and Apple Music useless. Apple News was also labeled a failure.

Yet all of these failures drove up paid subscriptions and generated double digit revenue growth. I don’t get it. How could the tech blog experts be wrong?

It's not really clear to me that services are actually doing well. Because they don't break things out, we only know totals for this category. I see two possible problems:

1) App Store revenue: If this is the big growth driver, which seems totally plausible, then the other services could be doing very badly indeed. Which would be fine, except that revenue is under concerted attack by regulators worldwide.

2) Apple Music can't be a very big source of profit, even if it is a big source of revenue, because of the prevalence of streaming and the known low-margin nature of that business.

There are some counter-arguments, but I doubt they're very strong. What do we actually know about subs to Apple TV+? Not much. I suspect they're OK, but how much of that is Ted Lasso and how much of that is free subs due to device purchases?

As for Apple News... I would bet you money it's zero percent of their revenue. Do you use it? Because I do. And it's pretty terrible. I've never been tempted to upgrade to paid.

The biggest bit of weirdness, though, I only spotted today (though others may have noticed this before). When they talked about 745 million subs, it was widely reported as just that. But what they *actually* said was 745 million subs for Apple AND FOR THIRD PARTIES - that is, apps in the apps store. So again, those subs are earning less (15% after the first year) and those earnings are under threat.

So it's entirely possible that they're doing well. But it's also entirely possible that the App Store is the only thing earning real money, and they're going to take a massive hit to revenue and growth as regulation kicks in. The fact that they're not making this clear should trouble you if you own stock. But again, it's hard to tell if they're hiding things- it's out of character but not impossible.

Worth noting: Apple's services explosive growth has occurred exclusively after the introduction of their various subscription services (2015 onwards). It's a bit hilarious to see people targeting the App Store thinking it's the golden goose, it's likely possessing the poorest margin across all of their services.

EsquireCats said:

Worth noting: Apple's services explosive growth has occurred exclusively after the introduction of their various subscription services (2015 onwards). It's a bit hilarious to see people targeting the App Store thinking it's the golden goose, it's likely possessing the poorest margin across all of their services.

The AppStore has an INCREDIBLE margin according to expert testimony in the Epic trial. . Out of every dollar that Apple gets to keep it costs them only about 22 cents (IIRC) to promote, host, and support the AppStore infrastructure. 

EDIT: Found this in the investor notes following this quarter's results:
"Cloud services, ‌Apple Music‌, advertising, video, and payments saw all-time revenue records, while the ‌App Store‌ saw a new June quarter revenue record." No mention of AppleTV+ or Apple News, and we all should know by now that Apple Music has such tight margins that it probably operates at a loss, as does AppleTV+.

If I were wagering I'd say the bulk of Apple's profit in services comes from the AppStore and money from Google rather than subscriptions. I'd even make a guess that Apple Pay is delivering more in profits than any of Apple's subscription services. 

EDIT2: There's also this short read:
https://www.marketwatch.com/story/how-profitable-is-apples-app-store-even-a-landmark-antitrust-trial-couldnt-tell-us-11622224506