Apple’s hardware sales growth has been negligible-to-flat for several quarters in a row. More than ever, their quarterly financial statements depend on the Services business to show a record result. This quarter, Apple reported 8% revenue growth for Services, topping $21.2 billion for the quarter, and announced it had reached 1 billion paid subscriptions on its books. They also said the installed base of active devices hit an all-time record, without disclosing a specific figure. (Apple has repeatedly argued that a bigger install base means more customers will engage with services over time, and so far that has held up.)
But that’s about all Apple will tell us as to the performance of Services. It hasn’t reported Apple Music subscriber numbers since 2019, nor has it ever given hard figures about the performance of Apple TV+, Apple Arcade, News, iCloud, or Apple One in general. A billion subscribers is a huge headline figure, but it obscures the real story of what most people think of when you say ‘Apple services’. Services includes the App Store, and so a majority of that 1 billion total includes In-App Purchase subscriptions from third-party apps in the App Store. Although we never know for sure because Apple won’t tell us, it follows that the majority of Services revenue growth hails from the 15-30% commission Apple collects on those in-app purchase transactions.
If I was a financial investor, I would be growing increasingly dissatisfied with the murkiness of the Services business. For Apple’s flagship growth unit, it’s really hard to get a read on its performance. The golden goose of Apple’s stronghold on the App Store is constantly under threat from regulation, but we can’t measure the potential impact on Services revenue. The success of Apple’s content services are a hedge against the risk of App Store commission drying up, but we don’t know anything about the state of those offerings — we can’t even say for sure they are successful.
Apple stopped reporting unit sales numbers for its hardware products in 2018, but it still reports revenue per division. Rather than a single ‘Hardware’ revenue total, Apple reports quarterly revenue breakdowns for iPhone, Mac, iPad, and Wearables, which gives some visibility into how each product line is doing over time. In contrast, Services is completely opaque. There is no breakdown provided, just one total revenue figure. I am surprised there isn’t more pressure here from Wall Street for Apple to reveal more details. A few years ago, Services was small enough that it didn’t really make sense to split it out. These days, though, Services is so large that it is bigger than the Mac, iPad and Wearables units combined in revenue terms. If you hypothetically split out the App Store as a sub-unit, there’s a decent chance it alone would be larger than the iPad on the balance sheet.
At the very least, I think it’s time for Apple to be more transparent about that subscription total. How many of the 1 billion subscriptions are for Apple’s services, versus third-party subscriptions? And how many unique users does that 1 billion subscriptions represent? It’s not even clear to me how it is calculated. A user who pays for iCloud and Apple Music presumably counts as two subscriptions, but as a subscriber to Apple One Premier, do I count as one subscription, or six?