Like clockwork, Apple (NASDAQ:AAPL) has added 30 million paid subscriptions to its services business for nine consecutive quarters. At the end of 2019, the company boasted 480 million paid subscriptions, which puts it on track to hit 500 million (a target set last year by CFO Luca Maestri) by the end of this quarter. With that goal within reach, Maestri set a new one of reaching 600 million paid subscriptions by the end of 2020. That implies another 120 million paid subscriptions added this year -- the same 30 million per quarter.
Given all the new first-party services Apple has been introducing as part of its services push, why isn't paid subscription growth accelerating?
Apple's newest services aren't contributing much...yet
In early 2019, Apple announced three new subscription services: Apple News+, Apple Arcade, and Apple TV+. The Mac maker had also introduced its first credit card, Apple Card, which isn't a subscription product (and doesn't have an annual fee) but will help contribute to the services segment nonetheless.
Apple News+ appears to be a flop, with reports suggesting that Apple has been unable to grow the subscriber base beyond a couple hundred thousand. Publishers are reportedly frustrated with the premium news service, as Apple hogs half of all subscription revenue and ad revenue is poor due to the lack of sophisticated targeting that could encroach on user privacy. Reducing its revenue share and/or making its advertising more sophisticated could help improve the service's appeal to content partners.
Apple Arcade looks promising, even as it may entail some cannibalization risk. The company is addressing certain pain points in the mobile gaming industry -- excessive ad load and exploitative in-app purchase monetization -- which is good for consumers, but Apple was getting a cut of those digital sales. It's an entirely new model that has the potential to reshape mobile games. Unfortunately, Apple has provided very little commentary around the service; CEO Tim Cook merely said Apple Arcade has "been fast off the blocks." The company just aired its first TV commercial for Apple Arcade in an effort to bolster awareness.
Apple TV+ is a bit more complicated. While the tech giant's first video-streaming service probably has the most potential to garner subscribers if Apple can produce compelling original content, that content will be extremely expensive and competition remains intense. At the same time, Apple is giving away a free year of the service bundled with hardware purchases, and it's unclear if bundled subscribers are counted as paid subscriptions. The number of subscribers is the primary metric that Apple is looking at, and hopefully the company can grow this figure -- and disclose it to investors -- once that free year is up.
Other subscriptions like iCloud and AppleCare continue to hit new highs, and Maestri said third-party subscription service revenue jumped 40% last quarter. It seems like Apple's paid subscription growth should be accelerating. Of course, Apple could hit 600 million paid subscriptions before the end of 2020, which would signify acceleration. Investors will want to keep a close eye on that trajectory throughout the year.