NEWS ANALYSIS
gross margin on services was 64.4 percent. That’s right,
Apple’s Services business has nearly twice the gross
margin of products.
In other words, every dollar of Services revenue
generates nearly twice the profit of product revenue.
Apple’s product margins are really good, but its
Services margins are spectacular. This is more
than growing revenue – it’s growing revenue in an
incredibly profitable segment.
Apple TV+ is ‘immaterial’
Apple launched its Apple TV+ service during the
quarter, meaning that it’s not a major contributor to
the results this time out. In fact, Maestri went so far
as to refer to it as “immaterial to our results”. But he
did offer a little bit of clarity about how Apple will be
accounting for Apple TV+ revenue in the future.
First, there’s the easy part: people who pay for
the service. Apple takes that money and accounts for
it monthly. Then there’s the tricky part: people who
got a free year of Apple TV+ because they bought
a new Apple device, which Apple calls “Apple TV+
bundle subscribers”.
Apple is accounting for the money from those
subscribers by taking a certain amount of money out of
their hardware purchases, transferring it to the Services
revenue line, and spreading it out over the entire free
year period. The challenge is that it has to estimate
how many people will be taking advantage of the offer,
which requires a little math.
“You need to keep in mind that from our total
eligible device sales, you need to make a number
NEWS ANALYSIS
grossmarginonserviceswas64.4percent.That’sright,
Apple’sServicesbusinesshasnearlytwicethegross
marginofproducts.
Inotherwords,everydollarofServicesrevenue
generatesnearlytwicetheprofitofproductrevenue.
Apple’sproductmarginsarereallygood,butits
Servicesmarginsarespectacular.Thisismore
thangrowingrevenue–it’sgrowingrevenueinan
incrediblyprofitablesegment.
AppleTV+is‘immaterial’
ApplelauncheditsAppleTV+serviceduringthe
quarter,meaningthatit’snotamajorcontributorto
theresultsthistimeout.Infact,Maestriwentsofar
astorefertoitas“immaterialtoourresults”.Buthe
didoffer alittlebitofclarityabouthowApplewillbe
accountingforAppleTV+revenueinthefuture.
First,there’stheeasypart:peoplewhopayfor
theservice.Appletakesthatmoneyandaccountsfor
itmonthly.Thenthere’sthetrickypart:peoplewho
got a freeyearofAppleTV+becausetheybought
anewAppledevice,whichApplecalls“AppleTV+
bundlesubscribers”.
Appleisaccountingforthemoneyfromthose
subscribersbytakingacertainamountofmoneyoutof
theirhardwarepurchases,transferringittotheServices
revenueline,andspreadingitoutovertheentirefree
yearperiod.Thechallengeisthatithastoestimate
howmanypeoplewillbetakingadvantageoftheoffer,
whichrequiresalittlemath.
“Youneedtokeepinmindthatfromourtotal
eligibledevicesales,youneedtomakeanumber
