Apple Stock (NASDAQ:AAPL)
The App Store is a significant contributor to Apple’s (NASDAQ:AAPL) Services division, which some analysts estimate to be worth as much as $1.5 trillion of the company’s near $3T value. But investment company Barclays says that other parts of the Services pie, such as advertising and payments, may increase future development. As a result, Apple stock surged in the market.
Tim Long’s team of experts predicts that Apple stock will bring in $83 billion in Services revenue during fiscal year 2023 and $93 billion during fiscal year 2024. Analysts estimate that this contributes 35% of the company’s total profit, so it’s crucial even if future growth is just in the low single digits.
Analysts at the investment company predict that advertising will make up 29% of Apple’s (NASDAQ:AAPL) total services income this year, partly due to traffic acquisition expenditures and Apple’s own advertising business.
Despite legal and economic threats to the company’s traffic acquisition expenses (most of which come from Google, the company’s own ad business has “a lot of runway across its other businesses.”
Analysts expect its advertising income, which accounts for a significant chunk of its Services revenue, to expand by 35% over the next three years.
Analysts at Barclays predicted in March that by 2023, advertising would bring in $7.5 billion, up from $5 billion in 2022, with the bulk of that growth coming from advertisements on the App Store. According to recent rumors, Apple (NASDAQ:AAPL) may introduce advertising to additional applications, such as Apple TV+ and Apple Maps.
Despite only accounting for around 3% of Services revenue now, Apple Pay is expected to increase rapidly over the next several years, by as much as 35%, since Apple (NASDAQ:AAPL) “dominates in mobile payments.”
The iCloud division of Apple (NASDAQ:AAPL), overseen by Tim Cook, has also fared well, reportedly accounting for 13% of Apple’s Services revenue.
According to the experts, “this business clearly benefits from the ecosystem” because of the widespread use of iPhones.
It is estimated that AppleCare, the company’s insurance and extended warranty program, contributes 12% of income to Apple’s Services division. The analysts noted that Apple Care has seen a “decent increase” in attach rate lately, with most of it coming from Apple’s own retail outlets.
Apple’s “stable” pace of subscriber growth may be largely attributed to Apple Music’s success, which is responsible for an estimated 11% of Services revenue. However, it faces stiff competition from services like Spotify, YouTube Music, and Amazon Music. Despite widespread speculation about its “very low” profit margins, it has failed to gain market share.
Analysts predict that the App Store, which is expected to account for 31% of Services income this year, will continue to face headwinds despite the success of advertising and payments. Weak macroeconomic conditions, foreign exchange pressures, continued pressure from China’s gaming industry, changes to Apple’s identifier for advertisers, and the possibility of losing commission-related revenue from in-app purchases and subscriptions, from which Apple (NASDAQ:AAPL) takes up to a 30% cut, are all factors that could negatively affect the gaming industry.
One area where experts are less optimistic about its prospects? They estimate that 2.5% of Apple’s service revenue comes from Apple TV+.
By increasing pricing by 30% over the next four years, the streaming service, which has created successes including Ted Lasso and Severance, might see a corresponding increase in income. Despite this, the corporation is almost certainly still losing money on the effort, maybe to $6B, causing analysts to “struggle with how this business fits in.”
Featured Image: Pexels @ Daniel Lengies
Author Shariq Khan 
