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Why Apple Pay, AirPods, & Services Are More Vital Than Ever

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Apple (AAPL - Free Report) saw its stock price climb Wednesday as it inches ever closer to that elusive $1 trillion market cap. The firm’s iPhone revenues surged once again during its fiscal Q3, but investors seem much more excited about Apple’s growing Services unit, which features Apple Music, Apple Pay, along with other newer businesses.

Quick Q3 Overview

Apple’s overall third-quarter revenues surged by 17% to hit $53.27 billion, topping the $52.34 billion Zacks Consensus Estimate. The iPhone power’s Q3 earnings soared by 40% to reach $2.34 per share, also coming in above our estimate.

Total iPhone revenues jumped by 20% to $29.906 billion. However, iPhone unit sales rose by only 0.7%—although Apple rounded this figure up to 1%—to 41.300 million. This contrast illuminates how much the high-priced iPhone X has helped Apple but also demonstrates why Apple’s newer segments are so important going forward.


Apple’s Services business, which also includes AppleCare and revenue from digital content and services, saw its quarterly revenues skyrocket 31% from $7.266 billion to reach $9.548 billion—accounting for nearly 18% of total Q3 revenues. Last quarter, Services revenues soared by this same amount to hit $9.190 billion. Looking ahead, Cook said on Apple’s Q3 earnings call that his company is on target to reach its goal of doubling its fiscal 2016 Services revenue by 2020—Apple reported total Services revenues of roughly $24.4 billion that year.

Apple Music is one of the biggest new growth areas in Services and is already challenging streaming music giant Spotify (SPOT - Free Report) in the U.S. market. Cook noted that Apple Music grew more than 50% from the year-ago period. Meanwhile, AppleCare revenue grew at its highest rate in 18 quarters. “And based on third-party research estimates, the App Store generated nearly twice the revenue of Google (GOOGL - Free Report) Play so far in 2018,” Cook said.

Apple stated that paid subscriptions from Apple and third parties surpassed $300 million. This represented an increase of more than 60% in the past year alone. “We generated double-digit services growth in all our geographic segments and the App Store, AppleCare, Apple Music, cloud services and Apple Pay all set new June quarter records,” Apple’s CEO continued.

The company said that its Cloud services revenues jumped 50% on a year-over-year basis. Apple also stated that Siri requests already surpassed 100 billion this fiscal year, which could prove important as Apple fights against Amazon’s (AMZN - Free Report) voice assistant business.

Investors should also note just how well Apple Pay has performed. Apple’s payment platform was used for more than 1 billion transactions, which tripled the amount of the year-ago. Cook claimed that Apple Pay completed more total transactions than Square (SQ - Free Report) and more mobile transactions than PayPal (PYPL - Free Report) .

Looking ahead, the firm expects Apple Pay to enter Germany soon and said that eBay (EBAY - Free Report) has started to allow sellers to accept Apple Pay. Furthermore, CVS (CVS - Free Report) and 7-Eleven are both set to roll out Apple Pay at locations nationwide.

“Other” Growth

Meanwhile, somewhat quietly, Apple’s Other Products unit has also expanded rapidly. The division, which includes AirPods, Apple TV, Apple Watch, Beats products, HomePod, and others, soared 37% to reach $3.74 billion, making it Apple’s fastest growing unit for the fifth quarter in a row.

“Apple Watch delivered record June quarter performance with growth in the mid 40% range, and we're thrilled to see so many customers enjoying AirPods,” Cook said. “It reminds me of the early days of iPod when I started noticing white earbuds everywhere I went.”

Apple’s wearables revenue exceeded $10 billion over the last four quarters. Apple Watch, AirPods, Beats and other wearables were up over 60% year-over-year with growth accelerating from the March quarter. The iPhone company has also prepared to make a streaming TV splash at some point over the next few years that will see it compete directly against Netflix (NFLX - Free Report) , Amazon, Hulu, and soon enough Disney (DIS - Free Report) .

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