Apple’s services business grows 18% as iPhone sales stall

Apple just announced their earnings for Q1 2017. The company reported $52.9 billion in revenue with EPS of $2.10, which slightly beat consensus estimates of $2.02.

But perhaps more importantly, this quarter’s revenue from services was $7.04 billion, which represents 18 percent growth year-over-year for the category, the same YOY growth percentage seen last quarter.

And while revenue from services last quarter was a little better at $7.17 billion, this is mainly due to the large sales bump Apple gets from the holiday season. In fact, revenue from services this quarter is only -2 percent compared to last quarter, which is insane when you consider that revenue from iPhone sales this quarter are -39 percent compared to last quarter.

Essentially services are a category where revenue can stay relatively stable quarter to quarter, even when hardware revenue falls dramatically, which is something that excites Wall Street.

Services are also playing a bigger role than ever when it comes to Apple’s bottom line. Last quarter revenue from services consisted of 13.3 percent of Apple’s total revenue. This is a nice bump from the year-ago quarter, where services accounted for 11.8 percent of total revenue.

While this 13.3 percent of total revenue only comprises a small portion of Apple’s overall revenue, it’s a product category to which many investors are paying close attention.

This is because it’s a way for the company to continue growing top line revenue even if hardware sales are stalling, by monetizing services running on hardware that the company’s already sold.

These services include things like the App Store, iTunes Store, Apple Music Subscriptions, Apple Pay, iCloud Storage Costs, AppleCare and more.

Essentially, instead of generating revenue from a customer every two years when they buy a new phone, Apple wants to be in a position to make money from them every single month, regardless if they buy a new hardware device or not.

Plus, a lot of Apple’s services offerings are re-occurring, like Apple Music, iCloud Storage and, to some extent, Apple Pay. This means the company can expect to generate monthly revenue indefinitely from all users who are subscribed to these services, which is something that Wall Street loves.

Of course, other services like the App Store still generate tons of revenue on a consistent basis for Apple, even if it isn’t technically recurring. In December alone of last quarter the App Store saw $3 billion in purchases, making it the best month ever for the store.