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This year could arguably have been one of Apple’s most difficult heading into September. As we approach the company’s earnings report this afternoon, Apple has had to reconcile a deluge of rumors around a new new iPhone with the need to continue to sell phones and keep its engine running — even if it’s just in neutral for now.
So, like last quarter, we’re probably going to see Apple point to its Services revenue — its favorite new stat — as the growth story that it wants Wall Street to devour ahead of the typical September event. CEO Tim Cook likes to refer to this will be the size of a Fortune 100 company later this year on the company’s earnings calls, which in reality isn’t far off. Last quarter alone, Apple generated $7 billion in Services revenue.
That bucket basically includes all the non-hardware-y things like Apple Music. And as Apple continues to announce new milestones for the App Store and Apple Music (which we also might get an update on this afternoon), that story for Wall Street is clearly playing out as intended. Services is a predictable layer of revenue that grows at a semi-predictable rate, which analysts can probably use to map out going forward with a good amount of accuracy. So surprise performances here could nudge the stock up, and vice versa.
Apple’s services business scales with its base of iPhones and the ease of access to those services. As it bakes more of these into the core iPhone experience — like iTunes — it can increase that portfolio of bits of incremental revenue. It will have to contend with the costs and challenges of acquiring the right content and keeping it on its platforms, but let’s be serious here: it’s Apple. If there is any company (other than Google) that can wrangle in all these organizations, it’s the creator of one of the largest mobile computing platforms in the world.
That, too, does explain the company’s seeming desire to get into content. Including the recent ill-fated launch of Planet of the Apps, getting additional content (first-party or otherwise) can help get people locked into its services and, once again, help that stream of revenue grow at a predictable rate. Apple said it hired Sony’s Jamie Erlicht and Zack Van Amburg in June as part of a growing narrative of its interest in building out a base of content.
Wall Street overall is expecting $44.89 billion in revenue and earnings of $1.57 per share.
Apple will, of course, likely sell a bunch of glass slates that connect to the Internet as it always does. But with its stock exploding in the past year — up more than 25% even after its second-quarter speed bump — it’s going to be looking to string together new narratives ahead of the next iPhone launch. It probably doesn’t need them as a fresh, redesigned iPhone can always be a game-changer for the company (and it looks like that’s what we’re going to get).
Featured Image: BERND THISSEN/AFP/Getty Images
