February 1, 2017:iPhone helps Apple return to growth as services loom large

iPhone helps Apple return to growth as services loom large

Crisis? What crisis? Apple announced its financial results for the final quarter of 2016 – its fiscal first quarter of 2017 – yesterday, reporting record revenues and iPhone sales.

But it’s the continued surge in Apple’s revenues from ‘services’ that’s just as interesting from a music industry perspective, with Apple Music playing a role.

The key stats? Apple reported revenues of $78.4bn last quarter, up 3.3% year-on-year. That helped to generate a $17.9bn net profit, slightly down from the $18.4bn a year ago. Apple sold 78.3m iPhones during the quarter, up 5% after much talk in 2016 about declining year-on-year sales of the company’s flagship devices.

Apple ended 2016 with $246.1bn in cash, with CEO Tim Cook telling analysts that “we are always looking at acquisitions… we look for companies of all sizes, and there’s not a size that we would not do based on just the size of it”.

That cash mountain is also helping to fund original projects for Apple Music, as Cook explained. “We have put our toe in the water with doing some original content for Apple Music, and that will be rolling out through the year,” he said.

Services was the other big story from the results. Apple generated a record $7.2bn in service revenues last quarter, up 18% year-on-year. Note, apps are the key driver here: Apple’s App Store generated $3bn in purchases in December 2016 alone.

But Cook announced another metric too: “Our Services offerings are now driving over 150 million paid customer subscriptions,” he said. “This includes our own services and third-party content that we offer on our stores. We feel great about this momentum, and our goal is to double the size of our Services business in the next four years.”

There were no new stats for Apple Music, although CFO Luca Maestri trumpeted Apple’s overall market position. “We are the market leader in digital music,” he said.

“Obviously now, by having the combination of the download business with the streaming service, which we didn’t have until recently, we’ve been able to bring our music business back to growth. We’ve grown over the last three quarters, and we feel very good about that.”

The picture is more nuanced than that: Apple Music’s growth must be balanced against the iTunes Store’s decline, as we explained in an analysis piece last September.

Still, with 20 million paying subscribers, Apple Music has carved a meaningful position for itself in the music-streaming market, and with Apple placing such a priority on the growth of its services division, it should get plenty of internal attention and resources in the years ahead.

Stuart Dredge
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