The services unit of Apple has become a $100 billion a year powerhouse following "extraordinary" growth.

• Over the past decade, Apple's services business, which generates higher profits than hardware, has become a crucial element of the company's allure to Wall Street investors.
• The company reported $24.9 billion in services revenue in its September quarter, which is equivalent to $100 billion annually.
• According to Apple CFO Luca Maestri, it's a significant achievement.

The iPhone has become a $100 billion a year business that Wall Street adores, making it the second-largest division.

On Thursday, Apple reported that its services revenue reached $24.9 billion, surpassing its previous record and representing a 12% increase year over year.

"Apple CFO Luca Maestri stated on a call with analysts that reaching a run rate of $100 billion is a significant milestone. He emphasized the incredible growth the company has experienced in recent years."

In the December quarter of 2014, Apple reported its services revenue for the first time, which amounted to $4.8 billion.

Over the past decade, Apple's services unit has been a significant factor in attracting investors, with a gross margin of 74% in the September quarter, higher than Apple's overall margin of 46.2%.

The company's SEC filings reveal that its services encompass a diverse array of offerings, including advertising, search licensing revenue from Google, warranties called AppleCare, cloud subscription services such as iCloud, content subscriptions like Apple TV+, and payments from Apple Pay and AppleCare.

During a January 2016 earnings call, Apple CEO Tim Cook advised investors to closely monitor the reporting segment, which was still in its early stages.

Cook stated that the assets in this area are immense and the investment community should concentrate more on them.

To give a sense of its scale, Apple has compared its services business to Fortune 500 companies ranked by sales over the years. As of Thursday, based on its most recent run rate, Apple's services business would rank around 40th on the Fortune 500, surpassing Morgan Stanley and Johnson & Johnson.

Recurring subscriptions in services are more reliably modeled than hardware sales, which fluctuate based on the demand for a specific iPhone model.

Yes, the recurring portion is growing faster than the transactional one, as Maestri stated on Thursday.

On Thursday, Apple's fourth-quarter results exceeded Wall Street expectations for revenue and earnings, but net income decreased due to a one-time charge resulting from a tax decision in Europe. As a result, the stock dropped by up to 2% in extended trading.

Apple predicts to investors that its revenue from services will increase in tandem with its customer base. Following the purchase of an iPhone, customers are likely to subscribe to Apple's services, utilize Safari to search for Google, or purchase an extended warranty.

Apple's "subscription" figure encompasses both its own services, such as Apple TV+, and users who subscribe to App Store apps on a recurring basis.

In February, Apple reported having 2.2 billion active devices, while in August it announced it had surpassed 1 billion paid subscriptions.

The services business of Apple has been growing at a rapid pace, but questions remain about how long it can sustain this growth. From 2016 to 2021, the unit experienced significant growth, reaching 27.3% at the end of that period.

In fiscal 2023, services growth decreased to 9.1% before recovering to approximately 13% in the following year. Apple informed investors that it anticipated services growth in the December quarter to be roughly the same as in fiscal 2024.

On Thursday, Cook was questioned about how Apple could accelerate the growth of some of its services and the Apple One subscription package.

"Cook stated that there are numerous customers to persuade to utilize the service, and the company will continue to invest in the services and introduce new features, including News+, Music, and Arcade."

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