Though some investors may worry that Apple's (NASDAQ:AAPL) iPhone revenue growth is unsustainable, few would question the strong prospects for the tech giant's fast-growing services segment, which includes revenue from digital content, services, AppleCare, Apple Pay, licensing, and other services. Services revenue surged in Apple's fiscal 2017, rising 23% year over year to $30 billion. And this momentum has continued unabated so far in fiscal 2018.
To fully appreciate just how strong of a catalyst Apple's services business is, here are three metrics highlighting the segment's robust growth recently. From its accelerating revenue growth to record quarterly growth in subscriptions, Apple's services segment has transformed into an unstoppable force.
1. 27% revenue growth
A surface-level glance at Apple's first-quarter operating results in the previous two quarters could lead investors astray in an analysis of the tech giant's services business. Apple's operating data shows services revenue rising 34% year over year in the fourth quarter of fiscal 2017 and 18% year over year in the first quarter of fiscal 2018. This implies a significant deceleration in the segment's year-over-year revenue growth rates.
But adjustments for a one-time item in the fourth quarter of 2017 and a shorter first quarter show the opposite is actually true. After these changes, Apple's services business is actually seeing accelerating growth. Adjusted services revenue was up 24% year over year in Q4 and 27% year over year in Q1.
2. 240 million paid subscriptions
Paid subscriptions across Apple's services business climbed past 240 million by the end of Q1, Apple CEO Tim Cook said in the company's first-quarter earnings call. This was a record quarterly increase of 30 million subscriptions and was up a whopping 58% year over year.
This growth in subscriptions even exceeded Amazon's (NASDAQ:AMZN) growth rate for subscription revenue during the same period. Amazon's subscriptions, which include the popular Amazon Prime membership, Amazon Music Unlimited, audiobook, e-book, digital video, digital music, and other subscription services, saw revenue rise 49% year over year, or 47% when excluding currency changes.
Of course, this isn't a perfect comparison since we're comparing Apple's growth in subscriptions to Amazon's growth in subscription revenue. But it's notable to see Apple -- a company that focuses primarily on hardware -- right up there with Amazon -- a company that mastered subscriptions with Amazon Prime.
3. 50% more merchants are accepting Apple Pay
Seeing growth in both active users and revenue, Apple Pay had its biggest quarter ever in Q1. More specifically, merchant adoption of Apple Pay in the U.S. climbed 50% year over year during the period. Thanks to this growth, Apple Pay is now an accepted payment method at over half of American retail locations and over two-thirds of the top 100 domestic retailers.
Apple also notably said that global Apple Pay purchase volume more than tripled year over year during Q1.
Apple Music, iCloud, and the App Store also had their biggest quarter ever and saw growth in active users and revenue.
With the help of strong catalysts in services like these, Apple's services revenue now accounts for 13% of trailing-12-month revenue, up from 9% of trailing-12-month revenue two years ago. Yet with Apple's services revenue growth accelerating recently, this trend may be just getting started.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.