Apple’s Services Biz Starts 2017 with a Blowout Day

Apple’s news release on App Store sales earlier today implies they generated $78M in App Store gross sales per day in 2016. We would have estimated New Year’s Day sales would gross about 30% more than an average day, or about $100M. The $240M in App Store sales they saw on 1/1/17 is a blowout day. 

We estimate that the App Store accounts for more than 65% of Apple’s gross Services revenue. Given the significance of the App Store to Apple’s Services business coupled with today’s announcement, we believe our previous expectation of 15% y/y Services revenue growth in 2017 is conservative. The actual number may be closer to 20% y/y growth in Services revenue.

The 2016 App Store numbers and the New Year’s Day App Store sales underscore how quickly Apple is becoming a Services business. We previously shared our thoughts on Apple reinventing itself as a Services business here. In short: the transition to Services is important as new platforms like AR and VR emerge and transform Apple’s existing mobile device businesses.

The transition to Services is important as new platforms like AR and VR emerge and transform Apple’s existing mobile device businesses.

In the Sep-16 quarter, Services accounted for 13% of revenue. We think that over the next 5 years, Services can grow to be 30% of Apple’s revenue, given new services that will be required for emerging platforms like AR and VR. Meanwhile, we expect hardware revenue to be flat to up slightly over the next five years, again, underscoring the importance of the Services business as new computing platforms emerge.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.