Apple is synonymous with the iPhone, but its greatest gross profits come from a completely different source.
With its highly anticipated launch in 2007, the iPhone was a revolutionary hardware device that started a revolution. apologize (AAPL -0.84%) To achieve global fame. One of the most successful products in history, this smartphone turned the tech giant into a global cultural icon.
Even today, iPhone remains Apple’s biggest revenue generator, generating $69.7 billion in revenue in its most recent fiscal quarter (ending December 30, 2024’s first quarter), or 58% of the company’s total. There is no doubt that the business is still well known for this product as well as other devices such as MacBook, iPad, AirPods, and Watch.
However, hardware sales pale in comparison to other fast-growing segments in terms of profitability.
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Creating a Powerful Ecosystem at Apple
Services, which accounted for 19% of Apple’s revenue in the most recent fiscal quarter, grew revenue 11.3% year over year, faster than the products segment, where sales were essentially flat. Services include Advertising, AppleCare, iCloud, App Store, Arcade, Fitness+, Music, News+, TV+, and more. paying credit card.
The sector has not only expanded at a rapid pace in recent years but has also achieved outstanding performance. gross profit At 72.8%, it is much higher than hardware devices. This is because these products are digital in nature and therefore have low marginal costs.
In addition to driving business growth and improving profitability, services support Apple’s overall ecosystem strategy. The global installed base of 2.2 billion active hardware devices will itself be commoditized and lack pricing power like any other consumer electronics product on the market.
But Apple’s software and subscriptions make the product even more valuable. They increase persistence and customer loyalty.
warren buffett I once suggested that if a person offered you $10,000 on the condition that you could never use your iPhone again, you would most likely decline the offer. This shows the importance of software and services.
However, with a current price-to-earnings ratio of 28.4, some investors might pause before buying Apple stock.
Neil Patel and his clients have no stake in any of the stocks mentioned. The Motley Fool has a position at Apple and recommends it. The Motley Fool has a disclosure policy.
