Services

The most important element of Apple’s post-iPhone strategy is the company’s services business. Apple’s current services include things like Apple Music, iCloud storage, and its App Store, and in the company’s most recent quarter, services revenue jumped 19%, to $10.9 billion.

One reason Apple is looking to its services segment to drive new sales and profits is because the segment is very profitable. The gross profit margin for Apple’s services business in the most recent quarter was 63%. And not only is the company’s services business lucrative, it’s adding users rapidly.

Maestri said on the company’s first-quarter conference call that, “Many services categories set new all-time revenue records all-time high during the quarter with the number of paid accounts growing by strong double-digits over last year. And we now have over 360 million paid subscriptions across our services.”

That 360 million figure is up from 240 million in the year-ago quarter. And its not just users that Apple is increasing — services revenue has jumped from $8 billion in calendar year 2010 to over $41 billion in 2018.

Apple might soon add more services to this already growing segment and is rumored to be working on a new TV streaming service that could launch as early as next month. The company is currently creating its own original content and will likely include subscriptions to other content, as well, in a similar way as Amazon creates its own original content for its service and also offers subscriptions to premium channels.

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With services revenue growing quickly and delivering high profit margins, it’s clear why the company is looking to this segment as its next big moneymaker.

Final thoughts

Apple is, of course, still generating the vast majority of its total revenue from iPhone sales and investors can expect the company to continue to try to boost smartphone sales. But with iPhone sales slowing — and the broader smartphone market stagnating — it’s time to look ahead to Apple’s new opportunities. And if the above segments are any indicator, Apple still has a bright future.

John Mackey, CEO of Whole Foods Market, an AMZN subsidiary, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AMZN and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.