Apple (AAPL -0.81%) stock has soared over the past year, rising more than 70%. This sharp rise is partly due to investors' growing appreciation for the tech giant's lucrative services business. As this key segment grows, the company is becoming less dependent on unpredictable hardware revenue.
Apple's services business hasn't disappointed in 2020. It has consistently been growing by double-digit rates year over year. Moreover, the key segment saw accelerated growth in fiscal Q4.
Here's a closer look at this import catalyst -- and why investors can count on it to keep delivering.
Image source: Apple.
Robust services growth in fiscal Q4
In Apple's fiscal fourth quarter of 2020, services revenue rose 16% year over year to a record $14.5 billion. This was notably a slight acceleration from 15% growth in fiscal Q3. Further, total services revenue increased by more than $1 billion sequentially.
Apple said in its fiscal fourth-quarter update that this was a record period for a number of the key components in its services segment, including the App Store, AppleCare, cloud services, Music, and Apple Pay.
Showing why investors love the tech company's services segment so much, its gross profit margin was 67% during the period -- far ahead of the 30% gross profit margin its products segment achieved. And the services business is lucrative: It generated nearly 40% of Apple's fiscal Q4 gross profit despite accounting for 22% of revenue.
Two reasons services can keep growing rapidly
Apple's services segment can likely maintain its current double-digit growth rates in the quarters ahead.
Image source: Getty Images.
The primary reason investors can expect more robust growth from services is that the company only recently started doubling down on the segment by launching a handful of new services. It was just last year when Apple unveiled Apple News+, Apple Card, Apple Arcade, and Apple TV+. More recently, the company announced a bundled option for its services called Apple One and a Peloton-like fitness subscription called Fitness+.
Apple's App Store growth remains a significant boon for the segment. Data from mobile app marketing intelligence company Sensor Tower shows revenue from the Apple App Store compounding at a rate of 31% year over year in October -- consistent with the strong growth rates the App Store has seen throughout the year.
With a broad base of strong drivers within Apple's lucrative services segment, this important segment looks poised to be a strong catalyst for the tech giant's top and bottom line for years to come.
