It would be easy to assume Apple (AAPL -0.39%) is nearing a plateau with its apps and content business. The company has already reached its goal of doubling 2017's services revenue by 2020, reaching that $50 billion target's annualized pace in late 2019.
Besides, while higher prices have continued to push the organization's iPhone revenue higher, growth in the number of iPhone owners on the planet is moderating. Apple reports there are now 1.8 billion actively used iOS devices in the world, impressively up 150 million from figures disclosed a year earlier, but only matching 2020's net additions.
Moreover, the smartphone market is nearing saturation. Data from technology market research outfits IDC and Canalys says total shipments of smartphones grew in 2021 from 2020's pandemic-suppressed levels, but they're still below the smartphone shipment peak seen back in 2016. In that there are limits to how much a smartphone owner -- even iPhone users -- will spend on apps, entertainment, and other digital diversions, the market-wide headwind is also a headwind for Apple.
As it turns out, though, Apple's not bumping into that headwind just yet. If anything it looks like the company's services are still catching a tailwind. One simple chart puts everything in perspective.
When it comes to Apple financials, seeing is believing
As the old adage goes, a picture is worth a thousand words. There's power in seeing a visualization of a company's success. To this end, take a look at Apple's services arm's historical revenue and gross profit all the way through the quarter ending in December. For even greater perspective, the division's profit margin percentage rate has been plotted using the axis on the right side of the graph.
You're not seeing things. Last quarter's $19.5 billion worth of services revenue is not only another record-breaking figure, but the sequential improvement of $1.24 billion from the previous quarter's tally is the second-best growth this business has ever seen -- second only to the sharp increase seen in the third quarter of 2020 when the world was sheltering at home. And that 2020 number is being compared to a sequential services lull suffered in the second calendar quarter of 2020.
Translation: Apple's services business isn't just still growing. It's accelerating.
The other key takeaway evident on the chart is the fact that the bigger this operation gets, the more profitable it becomes. A record-breaking 72.4% of every dollar the company's services business collected last quarter was converted into gross profit, well up from 2018's margin rates in the low 60s, when Apple first turned up the heat on its digital opportunity.
Apple still growing -- For now, and for the foreseeable future
This won't always be the case, of course. There will come a time when Apple runs out of new iPhone fans just as there will come a time when existing iPhone owners curb their appetites for apps and other digital content.
That time certainly isn't now, though, and given how well the company's services arm continued to grow last quarter when the world started getting out again, that time doesn't appear to be on the horizon either. At the very least it's assuring to Apple's investors who are worried the company doesn't have much of a growth engine once iPhone usage reaches its peak potential.