Six Colors
Six Colors

by Jason Snell & Dan Moren

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By Jason Snell

Fun With Charts: Why Apple’s Services and Wearables are in the spotlight

Every three months, we get to peer inside Apple’s business via the financial disclosures that are mandatory for American public corporations. (The company will reveal the specifics of its holiday quarter on January 28.) Four years ago, aware that the days of rapid iPhone growth were over, Apple began to talk up its Services category. Three years ago, the company set itself a goal — doubling its service revenue by 2020.

The rise of the Apple Watch and AirPods as successful products has led to Apple drawing attention to another category that didn’t previously get a lot of love. It was once the junk drawer of Apple financial categories, sporting the catchy label “Other Products,” until the company re-named it “Wearables, Home, and Accessories.” There are a lot of products in that category, but it’s clear that most of the growth is being driven by watches and wireless earbuds at this point.

Here’s a chart to put the growth in these two categories in perspective:

Chart of services and wearable revenue

In 2016 Apple generated $26 billion in services revenue, and in 2019 that grew to $46 billion. That means it only needs to show modest growth in 2020 to hit that target of doubling revenue—it shouldn’t be a problem, especially if you consider the track record of growth in Services, as shown in this chart:

Going back to fiscal 2015 you can’t find a single quarter in which Services didn’t grow by a double-digit percentage over the year-ago quarter. Services growth has been constant for half a decade. What’s even more notable for Apple is that this isn’t seasonal revenue. That makes sense, because services are generally not one-time purchases—they’re subscriptions that are ongoing, which means that money tends to get spread over the year rather than appearing in a single quarter.

That’s in contrast to a lot of Apple’s individual product sales, which are much more seasonal. It’s likely that Apple’s results announcement on January 28 will reveal Apple’s biggest sales quarter in its history—because a whole lot of people buy Apple products during the holiday season.

The Other/Wearables category hasn’t shown steady growth for as long as Services, probably because of choppy waters in the first couple of years of Apple Watch sales. (The Apple Watch went on sale in the spring of 2015 and the category got a huge injection of revenue, but couldn’t live up to those numbers in a 2016 sophomore slump.)

However, as much as we talk about Apple’s Services line as a bright spot in its business, the Wearables category has really been something to behold for the last few years. Eight straight quarters of 30% or larger growth year-over-year, and growth shot up to right around 50% in the two most recent quarters.

Sometimes it’s also useful to place Apple’s different product categories in the context of the overall Apple business. Apple exited the 2010s with six times the annual revenue that it entered them with. Overall growth like that can make it hard to see how any individual category fits into the bigger picture, so let me chart Services and Wearables together as a percentage of Apple’s overall revenue:

This chart is quarter-by-quarter, so you can see the seasonality that’s a part of Apple’s overall business. Still, you can see how the massive growth of these two categories has affected the overall revenue mix at Apple.

It’s not quite as visually impressive as the other charts, I know. But back in the middle of fiscal 2015 these two categories amounted for 16 percent of Apple’s total business. In Apple’s most recent quarter, they were 30 percent of revenue.

So when you read about Tim Cook emphasizing Services and Wearables to financial analysts or in a quick interview on CNBC come January 28—this is why. In less than half a decade, Services and Wearables have gone from afterthoughts to a third of Apple’s business.

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