Apple's services revenue grows despite hardware challenges

Apple has published its latest quarterly financial results, and the company’s services division – Apple Music included – was very clearly the bright spot.

Apple posted revenues of $81.8bn in the second quarter of this year (its fiscal Q3) but that was down 1.4% year-on-year. Sales in dollar terms fell for its three biggest product lines: iPhone (down 2.4%), Mac (down 7.3%) and iPad (down 19.8%).

The ebb and flow of Apple’s hardware sales depends on when new devices are released: the company won’t be panicking, especially given its $19.88bn net profit last quarter. But the strength of Apple’s services business is what stands out from these financials.

Services revenues were up 8.2% year-on-year to $21.21bn – more than Apple’s combined sales of Macs, iPads, wearables, home devices and accessories that quarter, with CEO Tim Cook announcing “an all-time revenue record in services during the June quarter, driven by over one billion paid subscriptions”. The latter figure is nearly double the number it had three years ago.

Cook said the growth was “better than we expected” for a division that includes music, video, apps and games, but also cloud and payment services. There were no specific figures for Apple Music, but chief financial officer Luca Maestri told analysts that the company set a new June-quarter record for its music revenues.

(The most recent figures we have for Apple Music remain the NMPA revealing last month that the service had 32.6 million subscribers in the US in February 2023 and Midia Research’s estimate that its global total was 84.7 million in June 2022. In its latest Music In The Air report, Goldman Sachs also estimated that Apple Music had 102 million subscribers globally at the end of 2022.)

This sits within the wider context of the importance of services to Apple alongside its hardware (although of course, the two are strongly interwoven).

10 years ago, in the second quarter of 2013, Apple’s $3.99bn of services revenues accounted for 11.3% of its turnover. Five years ago, in the second quarter of 2018, its $9.55bn of services revenue was 17.9% of the total.

And now, in the comparable quarter in 2023, the $21.21bn of services revenue were 25.9% of Apple’s business. Music is playing its part in this evolution.

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