Apple's Services Revenue Up 31% Year-Over-Year in 3Q 2018, Company is 'Thrilled' About Upcoming Services Pipeline

Apple's Services Revenue Up 31% Year-Over-Year in 3Q 2018, Company is 'Thrilled' About Upcoming Services Pipeline

Apple's services category continues to see rapid growth, further cementing its position as an important revenue driver for Apple.

During the third fiscal quarter of 2018, Apple's services revenue brought in $9.55 billion in revenue, up 31 percent from the $7.27 billion in revenue services earned in the third quarter of 2017.

The services category includes iTunes, the App Store, the Mac App Store, Apple Music, iCloud, Apple Pay, and AppleCare.

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According to Apple CEO Tim Cook, Apple "feels great" about the momentum in its services business, and the company saw double digit growth in its active services installed base. This quarter's growth was driven by strong performance in a number of area.

Subscriptions from Apple and third parties have surpassed $300 million, an increase of 60 percent year over year. Cook called the revenue from subscriptions "significant" and an "increasing portion of services."

There are now nearly 30,000 apps that offer subscriptions, a number that continues to see strong growth.

Cook said that App Store revenue, which set a new June quarter revenue, had exceeded Apple's "wildest expectations." Customers around the world are visiting the App Store more often and downloading more apps than ever before. Citing third-party research, Cook said pointed out that the iOS App Store saw twice the revenue of Google Play.

Apple has seen rapid growth in revenue from App Store search ads, with a recent update expanding search ads to Japan, South Korea, France, Germany.

Apple Music grew by more than 50 percent year-over-year (with Cook again reiterating the 50M subscriber number from May), and AppleCare grew at its highest rate in 18 quarters. Apple's cloud services revenue was up 50 percent year over year, and communications services, including FaceTime and Messages, are hitting all time usage highs. Siri requests have exceeded 100 billion, and articles read on Apple News have doubled year over year.

Apple in 2017 set itself a goal to double its services revenue to $14 billion per quarter by 2020, and the company is well on its way to reaching that goal.

Earlier this year, Morgan Stanley analyst Katy Huberty predicted that over the course of the next five years, services revenue growth will contribute more than 50 percent of Apple's total revenue growth.

Huberty estimated that services revenue is at $30 per device, with just 18 percent of Apple's total device install base subscribing to paid services, leaving plenty of room for growth in the coming years.

Apple is working on bolstering its services category, with rumors suggesting that a new TV streaming service for its original TV shows is in the works, along with a magazine subscription service based on its April Texture acquisition.

In response to a question about Apple's future services plans, Cook said that Apple is "thrilled" with its upcoming product pipeline and the new services that are included with it, hinting at that rumored TV service. Cook explained that Apple has hired two TV executives (Jamie Erlicht and Zack Van Amburg) to work on a project that Apple is not ready to discuss. Cook said that Apple is expecting dramatic changes to the content industry and is happy to have something in the works.

"We're not really ready to share all the details of it yet, but I couldn't be more excited about what's going on there. We've got great talent in that area that we've sourced from different places and feel really good about what we will eventually offer."

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Source: Apple's Services Revenue Up 31% Year-Over-Year in 3Q 2018, Company is 'Thrilled' About Upcoming Services Pipeline