Apple TV+ Is a Bright Spot in Apple’s Mixed Quarterly Earnings
Apple's overall sales declined for the fourth consecutive quarter, but its subscription revenue reached a record high.
Apple reported earnings for the September quarter yesterday (Nov. 2). The iPhone maker’s overall sales declined for the fourth quarter in a row, sending its shares to fall in yesterday’s after-hours trading. But there are several bright spots in the earnings report, including its “services” business, which brought in $22.31 billion in quarterly revenue, up 16 percent from last year and an all-time high. Apple’s services sector includes Apple TV+, Apple News+ and Apple One bundles, where users can subscribe to up to six services. iCloud storage, the Apple Store, Apple Care and advertising are also considered services. Apple CEO Tim Cook shouted out AppleTV+ on the call and boasted the accomplishments of original titles like Martin Scorsese’s Killers of the Flower Moon.
“We’re telling impactful stories that inspire imagination and stir the soul,” Cook said on yesterday’s earnings calls with analysts. Cook also highlighted the success of Apple’s partnership with Major League Soccer through the MLS Season Pass, saying subscriptions “exceeded expectations” within its first year.
“We have well over 1 billion paid subscriptions across the services on our platform, nearly double the number we had only three years ago,” CFO Luca Maestri said on the call.
Services make up around 25 percent of Apple’s total revenue. And the vast majority came from Google (GOOGL), which has an exclusive deal with Apple to make Google Search the default search engine on Apple devices. This year, Google is expected to pay Apple $19 billion for the search engine placement. During the September quarter, Apple brought in $89.5 billion in revenue and $22.96 billion in net income.
Cook said Apple’s services sector is expected to grow at a similar rate in the current quarter. CFO Maestri credited the growth in services for helping Apple’s gross margin, which was 45.2 percent in the past quarter. The margin is expected to be between 45 and 46 percent in the December quarter.
Maestri did clarify while answering a question from David Vogt of United Bank of Switzerland that the growth in services is not comparable with the performance of Apple’s device business, which is likely to get a boost in revenue during the holiday season. The only product this past quarter that beat revenue expectations was the iPad. Sales of Macs and wearables, such as the Apple Watch, came lower than analysts had expected. iPhone sales, which accounted for about half of Apple’s revenue, matched estimates in the past quarter.