Buried in a press release from Apple (NASDAQ:AAPL) earlier this week was a reminder of why the company is likely a great long-term investment. In a post about its services business, Apple said the tech giant has now paid developers an incredible $260 billion since the app store launched in 2008. But here’s what’s especially staggering about this figure: a whopping $60 billion of this sum was paid out in 2021 alone. Apple’s services business, which earns the bulk of its revenue from the tech company‘s cut of App Store billings, is obviously thriving.
“Apps and games [in the App Store] have become the essential source for the world’s most innovative and timely entertainment,” Apple said in a press release this week.
The reach and scale of Apple’s services business are mind-boggling. The company said developers via Apple Apps reach 600 million people every week across 175 countries. Furthermore, Apple noted in its press release this week that the $260 billion that Apple paid developers represents only “a small fraction” of the overall commerce transacted across its apps.
Another way to look at the impressive scale of Apple’s services business is to consider how many active devices the company has. While Apple doesn’t provide specific updates every quarter on how many active devices it has in use across the world, it has told investors in every quarter during fiscal 2021 that the figure rose to a new high each period. The last specific update on Apple’s installed base of active devices was at the close of the company’s December 2020 quarter. Management said Apple had more than 1.65 billion active devices worldwide at the time, with over one billion active iPhones.
This growing installed base of active devices represents an opportunity for Apple to engage and monetize its loyal users.
Understanding Apple’s services business
Apple’s services business is key to the bull case for Apple stock. Not only are Apple’s product sales lower margin than its services revenue, but product sales are historically less predictable and more volatile than Apple’s services business. As the services segment grows as a percentage of Apple’s total sales, this means Apple is growing its more reliable and higher-margin business, providing more substance to the stock’s valuation.
Apple’s services business continues to grow at high double-digit rates. Strong growth in the key segment has persisted recently, with services revenue for the 12 months ending Sep. 25, 2021, increasing 27% year over year.
Looking forward, investors largely expect Apple’s services business, which has an attractive gross profit margin of nearly 70%, to grow as a percentage of the company’s overall business. This should prove to be a strong catalyst for Apple’s earnings for the foreseeable future.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.