Apple’s AAPL Services business, which includes revenues from Internet Services, App Store, Apple Music, Apple Care, Apple Pay, and licensing and other services, has become the new cash cow for the company.
The performance of the Services business in third-quarter earnings, scheduled to be released on Jul 31, would be eagerly watched by investors in order to get a measure of the success of Apple’s revenue diversification strategy.
Click here to know how Apple’s overall Q3 performance is likely to be.
Services Momentum to Continue
Apple’s Services segment is expected to benefit from strong growth of the App Store. Robust spending for subscription-based applications such as Netflix, Tencent Video, Spotify SPOT and Tinder is likely to drive top-line growth.
Apple Music is another key driver. Per a latest report from Digital Music News, Apple Music has surpassed Spotify in terms of paid subscriber base. The streaming service has more than 50 million users (as of May), per Apple’s CEO, Tim Cook.
Notably, Spotify has 75 million subscribers. However, per The Wall Street Journal, Apple Music's growth rate in the United States is 5%, much better than Spotify’s 2%. The impressive growth rate bodes well for the Services segment.
Moreover, Apple Pay’s expansion into international markets like Brazil, Norway, Poland and Ukraine is expected to boost subscriber base further. Apple Pay’s integration with iPhones is helping it gain popularity.
In March 2018, Apple launched Express Transit with Apple Pay, in Beijing and Shanghai. Apart from the international markets, Apple Pay is gaining traction in the United States, as the platform is currently accepted by half of the country’s retailers.
In the last reported quarter, Apple Pay active users more than doubled, while transactions tripled year over year.
Zacks Rank and Stocks to Consider
Currently, Apple has a Zacks Rank #2 (Buy).
Vishay Intertechnology VSH and Upland Software UPLD are stocks worth considering in the broader Computer & Technology sector. Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Vishay is set to report on Aug 7, while Upland will report on Aug 8.
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