There's little question that Apple (AAPL 0.55%) has secured a place in business history. The success of the iPod, iPhone, iPad, and Mac computers, along with the company's growing ecosystem of services, has catapulted Apple into the annals of tech superstardom and driven its market cap to nearly $2.5 trillion, the highest of any publicly traded U.S. company.
However, a frequent refrain from Apple bears is that the company has no worlds left to conquer. With the smartphone market nearing saturation, newer models and upgrades will only take Apple so far. The iPhone maker has responded by focusing on its services business, which could someday overtake its products segment as Apple's primary revenue generator.
In fact, one of the company's services -- which started out as a punchline -- has the potential to drive Apple stock even higher.
Image source: Getty Images.
The little engine that could
After years of speculation, Apple debuted its streaming video service -- Apple TV+ -- in November, 2019, and suffice it to say expectations were muted. The service was quickly dubbed an "also ran," debuting to lukewarm reviews, as well as laughter and derision among the Hollywood set. The service had little more than a dozen programs when it launched, leaving many to ask, "Why bother?"
Fast forward nearly two years, and the iPhone maker may be having the last laugh. Apple TV+ has grown to roughly 40 million subscribers, though roughly half of those are on free trials. While that's a far cry from the 209 million Netflix (NASDAQ: NFLX) reported to close out the June quarter and the 116 million that subscribe to Disney+, it's enough to place Apple TV+ among the streaming elite.
Adding fuel to the fire
Now that it has a foothold, Apple has big plans for the black sheep of the family. In the coming year, the iPhone maker plans to ramp up its output of movies and television shows, planning new releases each week, according to a report in The Information. If that sounds familiar, it should: Apple is taking a page directly from Netflix's playbook, offering new shows every week. Additionally, at twice the rate of its current release schedule, this would mark a significant increase in Apple's available programming. That's not all. The company plans to spend heavily in marketing its video service in 2022, spending more than $500 million to promote Apple TV+.
Image source: Getty Images.
Recent programming efforts, including Ted Lasso, Billie Eilish: The Word's A Little Blurry, Wolfwalkers, and 1971: The Year Music Changed Everything, have garnered both popular and critical acclaim. These wins increase the likelihood that Apple TV+ subscribers will stick around, allowing the company to build on its current viewer base.
A powerful growth engine
There's little question that cord-cutting is accelerating. Since its peak in early 2012, more than 19 million subscribers have abandoned pay-tv, with more than 5 million jumping ship last year alone. More viewers than ever are joining the streaming revolution. In fact, the average U.S. household now subscribes to four streaming services. This gives Apple a large and growing opportunity to tap.
Through the first three quarters of fiscal 2021, Apple's services have generated sales of more than $39 billion, or roughly 19% of the company's total revenue. Apple doesn't break out its services business, but at best, streaming video will likely contribute roughly $1.1 billion to total revenue this year, which is still a drop in the bucket -- leaving plenty of room for future growth.
If Apple continues to add premium quality programming to its content library at its current breakneck pace, it won't be long before its streaming business is a powerhouse in its own right.
