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2 Small Apple Inc. Business Segments About to Get Bigger

By Daniel Sparks – Mar 12, 2014 at 7:05PM

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Investors usually focus on Apple's iPhone, iPad, and Mac businesses. But two of its smaller businesses are about to get much bigger.

Most of the financial coverage surrounding Apple (AAPL 0.83%) stock is focused on the company's iPhone, iPad, and Mac businesses. But two of its smaller businesses are about to get much bigger: Apple TV and iTunes Radio.

While neither Apple TV nor iTunes Radio get their own operating segment in Apple's financial statements, both are undoubtedly becoming increasingly important to the company. Let's take a close look at both businesses and their potential.

Apple TV
At Apple's annual shareholder meeting in February, CEO Tim Cook said the tech juggernaut no longer considers its Apple TV business a hobby. Noting that it generated more than $1 billion in revenue in 2013 (respected Apple analyst Horace Dediu of Asymco guesses that this figure does not include iTunes purchases and instead only includes distribution revenue from channel placement), Cook said it's time for Apple to take the segment seriously.

Apple TV. Image source: Apple.

At less than 1% of Apple's total revenue, Apple TV likely won't have a big impact on the company's business in 2014. But considering how fast it's growing, Apple TV could at least become meaningful to results in the coming years. Dediu said on Twitter on Feb. 28 that he estimates hardware sales for the segment are up 80%, year over year. Furthermore, he tweeted that there is a 100% chance Apple will introduce an App Store for the set-top box in the near future -- a move that would undoubtedly aid the device's hot growth streak.

iTunes Radio
Though iTunes Radio is also undoubtedly a small business in Cupertino, its deep iTunes integration is one of the key ingredients that will help make Apple's ecosystem stickier for users over the long haul.

iTunes Radio. Image source: Apple.

Just six months after its launch last September, iTunes Radio is now the third-most popular streaming music service in the U.S., according to a report from Edison Research and Statista (via Fortune). iTunes Radio boasts an 8% market share in the U.S. audio streaming space among Americans 12 years of age and older, the report said.

To better compete with major streaming music competitors Pandora, Spotify, and iHeartRadio, iTunes Radio will get its own app in iOS 8, 9to5Mac reported this week.

9to5Mac's Mark Gurman explained the reasoning behind a stand-alone app for the service:

As a stand-alone application, users will be able to more quickly access iTunes Radio. Psychologically for users, iTunes Radio will be its own app competing with the likes of the Pandora, Spotify, and iHeartRadio apps found on the App Store.

Bolstering Apple's important ecosystem
Apple's TV and iTunes Radio business could slowly but surely strengthen the company's already sticky ecosystem. Even more, as fast-growing businesses, both segments could eventually make small, yet meaningful contributions to Apple's financials. And considering that both of these businesses aid iTunes sales, their contributions to Apple's financials will be far more reliable streams of revenue than product revenue.

Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple and Pandora Media. The Motley Fool owns shares of Apple and Pandora Media. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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