AAPL Investors Should Look Inside Apple’s $70 Billion Black Box

AAPL investors should look inside the $70 billion black box of the company, analysts say. This is a nod to Apple lumping all of its services revenue into one figure, despite actually covering ten different lines of business for the company.

This question, they say, is vital to understanding the level of threat posed to Apple by App Store antitrust laws…

More secret Apple finances

In the past, Apple has been relatively open about its sources of revenue, including reporting separate iPhone, iPad, and Mac sales data.

That changed in 2018 when the company announced it would stop reporting sales data and instead only disclose the revenue stream for each product line. Given the range of retail prices for different models, it was much more difficult to know how well individual product lines were selling.

Apple reporting services revenue as a single figure wasn’t much of a problem back in the days when we knew it was the App Store plus much less revenue from other things.

But today everything is completely different. Services are a huge element of a company’s revenue. This business is worth a lot more than Macs and iPads combined, approaching the sum of Mac + iPad + AirPods + Apple Watch. Heck, according to the latest data, that’s almost half of iPhone revenue!

iPhone: $40.67 billion Mac: $7.38 billion iPad: $7.22 billion Wearables: $8.08 billion Services: $19.60 billion

The service is also the only part of Apple’s business where revenue (almost) moves in only one direction – up.

AAPL investors should see a slice of the App Store

Analysts say they need to see a breakdown of that revenue to properly understand the company’s future prospects. It is reported by Bloomberg.

Consider the quarter ended in June [where] Services growth of 12% was significantly slower than the 25% that had been the segment average for the previous four quarters. […]

Clearly, Apple hasn’t listed the App Store as one of the few companies driving service growth, as it has for several years. Instead, Apple said services growth was “primarily driven by higher net sales from advertising, cloud services and AppleCare.”

What’s the matter? Could regulatory and legal pressures affect App Store practices and fees? We don’t know and that’s the point […]

Arete Research analyst Richard Cramer, who pointed to Apple’s steady decline in disclosures, described the services last March as “a $70 billion black box bridging 10 different businesses.” This seems right.

The App Store is a big unknown here; the general consensus is that it remains the largest contributor to service revenue and its profit margin is estimated at 80%. This means that it brings in most of Apple Services’ profits. So if antitrust action hurts those revenues, that’s a very big deal.

Apple is facing huge antitrust pressure around the world, and most notably in the App Store. In the US, for example, the Open Marketplaces for Apps Act, which is close to being voted, will require big changes to the App Store business model, including allowing third-party app stores. How much this will affect the company’s revenue and earnings, AAPL investors would love to know, and right now they don’t even know how much money is at stake.

Photo: Milad Fakourian/Unsplash

similar