How Apple Could Double Its Services Revenues By 2022

by Trefis Team
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Apple’s (NASDAQ:AAPL) Services business has grown at a rate of over 20% over the last three years, eclipsing the iPad and Mac to become the company’s second-largest business segment with revenues of about $37 billion last year. In comparison, the iPhone business has expanded at a CAGR of just about 2% in the same period. In this note, we take a look at how Apple could potentially double its services revenues – which stood at about $37 billion last year – by fiscal 2022. It should be noted that the numbers used in this analysis – which are derived from multiple public sources and internal estimates – are generally ballpark figures to give readers an idea of what is likely driving Apple’s services juggernaut.

We have created an interactive dashboard analysis on Breaking down Apple’s Services revenue. You can modify the various drivers to arrive at your own estimates for services revenue for 2022.

App Store

The App Store is likely the biggest driver of Apple’s Services revenue, and we estimate that its revenues stood at about $13.5 billion in fiscal 2018. This assumes that the iPhone user base stands at about 1 billion users, with each user downloading about 9 paid apps per year costing $5 apiece. This translates into gross revenues of about $45 billion. As Apple is estimated to take a 30% commission from this, net revenues would come in at $13.5 billion.

Although Apple’s iPhone sales have been largely stagnant, the installed base is growing at a relatively healthy pace, driven primarily by pre-owned devices.  For instance, Bank Of America Merrill Lynch estimates that the iPhone installed base grew at a 15% CAGR over the last two years. If we assume that the user base grows to 1.3 billion by 2022, with paid app installs per user rising to 11, this would translate into revenues of over $21 billion, assuming the price per app and Apple’s take rate remain constant.

Apple Music

Apple’s Music business has seen solid growth, with the paying subscriber base rising from 30 million in September 2017 to 50 million in May 2018. We estimate that the figure stood at about 55 million at the end of FY’18. This would translate into an average user base of 42.5 million in FY’18. If we assume that the average revenue per user stands at about $7 per month (U.S. prices start at $10 for single user, but this is likely to be diluted by emerging markets where prices start at under $2 and also by family and student plans), annual revenues could come in at about $3.5 billion.

If we assume that the average user base number grows to about 75 million users by 2022, a CAGR of about 15%, with monthly ARPU rising to $8, it could translate into revenues of close to $5.5 billion. We believe that this is possible, as revenues from the streaming market grew by roughly 40% over the last year.


Apple’s iCloud business is strategically one of the company’s most important services, as it helps to increase switching costs for Apple’s products, effectively helping to lock in customers to Apple’s devices. We estimate that about 15% of Apple’s iPhone installed base used the service in 2018, with average monthly ARPU estimated at $2 per month (average of the $1 and $3 monthly plans). This translates into revenues of about $3.6 billion in FY’18. If we assume that 20% of the installed base adopts iCloud by 2022, with ARPU rising to $3 per month, it could translate into revenues of about $9 billion per year.

Licensing and Fee Revenues

While Apple receives licensing and fee payments from various third parties, a bulk of the revenues likely come from search behemoth Google, which pays Apple to be the default search engine for Siri and the Safari browser on Apple devices. Goldman Sachs estimates that these fees – which Google calls traffic acquisition costs – stood at roughly $9 billion in FY’18. This would imply annual revenue per device of about $9 for Apple. If we assume that the user base grows to 1.3 billion devices by 2022, with per device fee revenue rising to $11, this would imply revenues of about $14 billion.

Third-Party Subscriptions

Apple has noted that overall paid subscriptions made on its platforms as of October stood at 330 million, marking a 50% year-over-year increase. If we back out Apple Music subscribers estimated at 55 million, it would translate into a third-party subscriber base of 275 million.  If the average subscription is priced at $5 per month, this would translate to a revenue run rate of about $2.5 billion per year, assuming that Apple takes a recurring commission of 15% from subscription fees.  We project that overall paid subscriptions could grow to 500 million by 2022, driving subscription revenues to about $5.5 billion per year.

Other Services And Upcoming Streaming Video Offering

Apple also has multiple other Services-related businesses such as the Apple Care extended support and warranty program, iCloud and iTunes. We estimate that these revenues stood at about $5 billion in FY’18. It is possible that revenues from other services could grow to about $10 billion by 2022, driven partly by Apple Pay – which Apple has been expanding to multiple countries and retailers.

Apple is also expected to launch its own streaming video service next year, although it’s not clear what business model the company will follow for the service. The company could make it a paid service with a monthly subscription, use an ad-supported model, or just make it a free perk that comes with its devices (though this is less likely). If we assume that the company is able to garner 50 million subscribers who pay about $7.50 per month, the streaming service could add about $4.5 billion to Apple’s revenues by 2022.

Adding up the potential revenues of various offerings for fiscal 2022, total Services revenues could rise to about $72 billion, marking an increase of about 95% compared to the company’s FY’18 revenues. This would translate into a CAGR of about 18%, which is slightly below the growth that the business has been posting over the last few years.

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