Morgan Stanley analyst Katy Huberty told investors on Thursday that Apple’s services revenue is quickly growing, and is tracking to become the Cupertino firm’s primary revenue stream over the next few years.
Huberty estimated that roughly 60% of revenue growth is now attributable to services. That, coupled with wearables, like the Apple Smart Watch, “will drive almost all of Apple’s growth over the next five years,” she added.
Services revenue is at roughly $30 per device, up from $25 two years ago, but “this metric under estimates the long-term revenue potential” for services, the note said.
Huberty peers into the future fiver years or so and she sees services revenue growth contributing more than 50% of Apple’s total revenue growth. She expects the iPhone in the same period of time to make up only 22% of revenue growth during the same period. The device has contributed 86% of Apple’s revenue growth over the past five years.
In fiscal Q1 2018, Apple’s Services category brought in $8.5 billion, up 18% year-over-year. That is just the latest quarter in a series of quarterly revenue records. “Services” includes AppleCare, Apple Music, Apple Pay, the App Store, iCloud, and iTunes.
Huberty says services revenue is currently at around $30 per device, compared to $25 two years ago. She says that may not be an accurate reflection of actual spending.
Firstly, most Apple users do not currently pay for services, “suggesting that revenue per “active” user is well above, and possibly double, the $30 level.”
Also, Huberty believes not only could the $30 number actually be $60, but it “could approach $100 or more.” That is because, according to the note, Amazon Prime has about 106 million users who pay about $99 per year, and Netflix has roughly 111 million subscribers who pay about $120 per year.
A mere 18% of Apple’s installed device base pay to subscribe to Apple services, indicating plenty of room for growth in the category.