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Strong Content & Advertising Aids Apple's Services: More Upside Ahead?
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Key Takeaways
Apple Services made 27.9% of Q2 FY26 net sales, up 16.3% Y/Y to a record $30.98B.
Apple says its 2.5B active devices boost subscriptions, payments, cloud, ads and entertainment.
Apple plans Apple Maps search ads in the U.S./Canada and expanded Tap to Pay to 50 markets
Apple (AAPL - Free Report) continues to benefit from the strength of its Services segment, supported by growing traction in streaming content and an expanding Apple Arcade gaming portfolio. In the second quarter of fiscal 2026, Services contributed 27.9% of total net sales, with revenues rising 16.3% year over year to $30.98 billion, which was an all-time record in Apple’s history. A key driver behind Services growth is Apple’s expanding ecosystem of more than 2.5 billion active devices.
As more users enter the Apple ecosystem through products like iPhone 17 and MacBook Neo, Apple gains additional opportunities to monetize customers through subscriptions, payments, cloud services, advertising and entertainment offerings. Content and entertainment services have been an important contributor. The company has highlighted strong engagement on Apple TV+, citing returning hit shows such as Shrinking and For All Mankind. Sports content is also becoming increasingly important, with Formula 1, MLS Season Pass, and Friday Night Baseball helping drive subscriber engagement globally.
Advertising was one notable contributor within Services. Apple highlighted year-over-year growth in its advertising business alongside expanded App Store search placements. The company plans to introduce ads in Apple Maps during search and discovery moments in the United States and Canada later this year, while emphasizing privacy and customer experience.
Enterprise services and financial services also strengthened the Services segment. Apple expanded Tap to Pay into more than 50 markets and launched Apple Business, an integrated enterprise platform combining hardware, software, and services for corporate customers. Management also cited growing enterprise adoption from companies such as Marsh and Freshworks, which are increasingly deploying Apple devices for AI development and productivity applications.
Apple guided for Services revenue growth in the June quarter to remain similar to the March quarter on a constant-currency basis, suggesting sustained double-digit momentum despite a tougher macroeconomic backdrop.
Apple Faces Stiff Competition
AAPL is facing stiff competition from the likes of Amazon (AMZN - Free Report) and Microsoft (MSFT - Free Report) in domains like streaming and gaming.
Amazon offers Prime Video bundled with its Amazon Prime membership. The service offers both ad-supported and ad-free options. In comparison to Apple TV+, Amazon Prime Video has a much larger content portfolio, including originals. Moreover, Amazon’s advertising services revenue increased 24% year over year to $17.2 billion in the first quarter of fiscal 2026, and advertising grew to more than $70 billion in trailing-12-month revenue.
Microsoft’s gaming assets include Xbox and Activision Blizzard, and it is investing heavily in gaming studios and subscriptions. Microsoft’s More Personal Computing segment (15.9% of third-quarter fiscal 2026 revenues) is benefiting from growth in Search advertising.
Apple shares have returned 13.6% year to date, underperforming the broader Zacks Computer and Technology sector’s return of 17.5%.
Apple Stock’s Price Performance
Image Source: Zacks Investment Research
The AAPL stock is trading at a premium, with a forward 12-month price/earnings of 33.33X compared with the broader sector’s 25.64X. AAPL has a Value Score of F.
AAPL Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $8.74 per share, up 2.6% over the past 30 days, suggesting 17.2% year-over-year growth.
View the Zacks #1 Rank List
Image: Bigstock
Strong Content & Advertising Aids Apple's Services: More Upside Ahead?
Key Takeaways
Apple (AAPL - Free Report) continues to benefit from the strength of its Services segment, supported by growing traction in streaming content and an expanding Apple Arcade gaming portfolio. In the second quarter of fiscal 2026, Services contributed 27.9% of total net sales, with revenues rising 16.3% year over year to $30.98 billion, which was an all-time record in Apple’s history. A key driver behind Services growth is Apple’s expanding ecosystem of more than 2.5 billion active devices.
As more users enter the Apple ecosystem through products like iPhone 17 and MacBook Neo, Apple gains additional opportunities to monetize customers through subscriptions, payments, cloud services, advertising and entertainment offerings. Content and entertainment services have been an important contributor. The company has highlighted strong engagement on Apple TV+, citing returning hit shows such as Shrinking and For All Mankind. Sports content is also becoming increasingly important, with Formula 1, MLS Season Pass, and Friday Night Baseball helping drive subscriber engagement globally.
Advertising was one notable contributor within Services. Apple highlighted year-over-year growth in its advertising business alongside expanded App Store search placements. The company plans to introduce ads in Apple Maps during search and discovery moments in the United States and Canada later this year, while emphasizing privacy and customer experience.
Enterprise services and financial services also strengthened the Services segment. Apple expanded Tap to Pay into more than 50 markets and launched Apple Business, an integrated enterprise platform combining hardware, software, and services for corporate customers. Management also cited growing enterprise adoption from companies such as Marsh and Freshworks, which are increasingly deploying Apple devices for AI development and productivity applications.
Apple guided for Services revenue growth in the June quarter to remain similar to the March quarter on a constant-currency basis, suggesting sustained double-digit momentum despite a tougher macroeconomic backdrop.
Apple Faces Stiff Competition
AAPL is facing stiff competition from the likes of Amazon (AMZN - Free Report) and Microsoft (MSFT - Free Report) in domains like streaming and gaming.
Amazon offers Prime Video bundled with its Amazon Prime membership. The service offers both ad-supported and ad-free options. In comparison to Apple TV+, Amazon Prime Video has a much larger content portfolio, including originals. Moreover, Amazon’s advertising services revenue increased 24% year over year to $17.2 billion in the first quarter of fiscal 2026, and advertising grew to more than $70 billion in trailing-12-month revenue.
Microsoft’s gaming assets include Xbox and Activision Blizzard, and it is investing heavily in gaming studios and subscriptions. Microsoft’s More Personal Computing segment (15.9% of third-quarter fiscal 2026 revenues) is benefiting from growth in Search advertising.
AAPL’s Share Price Performance, Valuation & Estimates
Apple shares have returned 13.6% year to date, underperforming the broader Zacks Computer and Technology sector’s return of 17.5%.
Apple Stock’s Price Performance
Image Source: Zacks Investment Research
The AAPL stock is trading at a premium, with a forward 12-month price/earnings of 33.33X compared with the broader sector’s 25.64X. AAPL has a Value Score of F.
AAPL Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $8.74 per share, up 2.6% over the past 30 days, suggesting 17.2% year-over-year growth.
Apple Inc. Price and Consensus
Apple Inc. price-consensus-chart | Apple Inc. Quote
Apple currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.