Apple Continues to Expand Services Business: What's the Path Ahead?

Apple AAPL is continuously upgrading features of its Services offerings that revolve around the flagship device, iPhone. The company now has more than 1 billion paid subscribers across its Services portfolio, more than double what it had four years ago. In the fiscal second quarter, Services revenues grew 11.6% year over year to $26.65 billion. Infusion of Apple Intelligence into Services offerings like Apple Wallet and Apple Music is expected to drive top-line growth. 

At its latest annual Worldwide Developers Conference, Apple announced expansion to the Services business with AutoMix and Lyrics Translation features in Apple Music. Sing will allow users to transform their iPhones into a handheld microphone for Apple TV, while preferred routes and visited places in Apple Maps make navigation easier for users. 

Apple Intelligence is now getting added to Apple Wallet, and users can make purchases with Apple Pay. Powered by Apple Intelligence, Apple Wallet can now automatically identify, summarize and display order tracking details from emails sent from merchants or delivery carriers. Meanwhile, Apple Pay expands the ability to pay with rewards and installments to in-store purchases for added flexibility and choice. 

The company also introduced an update to Apple Maps that helps users search and discover top-ranked restaurants, hotels, golf courses and more, with the addition of rankings and insights from expert sources.

Per our model, Apple’s Services revenues are expected to see a CAGR of 15.6% between 2024 and 2027.

Apple Faces Stiff Competition

Netflix NFLX and Disney DIS are major competitors in the Services space. 

Netflix is benefiting from its growing subscriber base, thanks to a robust localized and foreign-language content portfolio and healthy engagement levels with about two hours of viewing per member per day, indicating strong member retention. Netflix has set an ambitious target to double its revenues by 2030, supported by a diversified content strategy, including international programming, live events and gaming initiatives.

Disney, on the other hand, has built up a massive global audience for its ad-supported streaming content. It has an estimated 157 million active users worldwide, 112 million of whom are of Disney’s streaming platforms in the United States. Disney is benefiting from strength in Domestic Parks & Experiences revenues driven by growth at domestic parks, Disney Vacation Club and Disney Cruise Line.

AAPL’s Share Price Performance, Valuation and Estimates

Apple shares have dropped 19.5% year to date (YTD), underperforming the broader Zacks Computer & Technology sector’s return of 4.5%.

AAPL’s Performance

Apple stock is trading at a premium, with a forward 12-month Price/Sales of 7.25X compared with the industry’s 6.75X. AAPL has a Value Score of D.

AAPL Valuation

The Zacks Consensus Estimate for third-quarter fiscal 2025 earnings is pegged at $1.41 per share, unchanged over the past 30 days, indicating 0.71% year-over-year growth. 
 

Apple Inc. Price and Consensus

Apple Inc. price-consensus-chart | Apple Inc. Quote

The consensus mark for fiscal 2025 earnings is pegged at $7.11 per share, unchanged over the past 30 days, suggesting 5.33% year-over-year growth.

Apple currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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