Apple Q2 earnings: A breakdown of Apple's services segment
Going in depth into the iPhone maker's other segments, Yahoo Finance senior reporter Alexandra Canal breaks down the components and revenue of Apple's digital services businesses in the second quarter.
A federal judge found Apple (AAPL) in violation of a 2021 court order demanding the tech giant to enable broader competition for app developers and payment methods on its App Store.
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We're taking a closer look under the hood of Apple's second quarter earnings, and joining us now is Yahoo Finance senior reporter, Alexandra Canal, with more. Hi, Ally.
Hi, Julie. Yeah, a lot to dig into in this report, but what's stuck out to me is that Apple isn't just a hardware company. In fact, its services segment is quietly becoming one of the most important parts of its business. So let's start there because while the iPhone still drives most of Apple's revenue, the services side, which includes everything from the App Store to iCloud, Apple Music and subscriptions like Apple TV Plus, that's becoming a big profit powerhouse. Last year, the segment alone pulled in over 96 billion dollars, nearly a quarter of Apple's total revenue, and it's growing faster than any other part of the company. Even Apple's financial services, like Apple Pay and the new Apple Card savings account, they're no longer just side projects. They're really becoming mainstream offerings, further locking users into Apple's expanding ecosystem. This is a new all-time revenue high, but was a slight miss compared to consensus estimates. That does translate to about 76% gross margins, compared that to just 36% margins for hardware, so it's a very highly profitable stream of income, and unlike hardware, which depends heavily on new product cycles, services generate recurring revenue. So even if you don't buy a new iPhone, you might pay monthly for iCloud storage. You could subscribe to Apple Music or stream on Apple TV Plus. And let's not forget the App Store, right? A judge earlier, ruling that Apple's current 27% fee for developers is anti-competitive. Now, that's becoming a big point of contention for these developers which are required to comply with Apple's guidelines in order to use their payment system. The case has now been referred for potential criminal contempt. So a major development to watch on the legal side of things here. Meanwhile, Apple's streaming business, Apple TV Plus, is reportedly losing about 1 billion dollars a year despite successful series like Ted Lasso and The Morning Show. Apple has been pouring tons of money into original programming. That's part of a long-term strategy to really build out its services segment. But the subscriber base is still relatively small, especially compared to streaming giants like Netflix or Disney Plus. So while Apple TV Plus boosts the brand and certainly adds value to the Apple ecosystem, financially it still seems to be a bit in the red. All that being said though, services remains Apple's second largest business, behind only the iPhone. It's outgrown both the Mac, the iPad, and it's becoming even more strategic as hardware sales slow globally. So in short, the next chapter of Apple's growth may not come from what's in your pocket, but from what you're actually paying each and every month. Josh, Julie.
Thank you, Ally.
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