Apple Fourth-Quarter Earnings Show Record 'Services' Revenue, Lower iPhone Numbers

Tim Cook during an Apple Event
David Paul Morris/Bloomberg via Getty Images

Tim Cook, chief executive officer of Apple Inc., speaks during an event in San Francisco on, Sept. 7, 2016.

"We are selling everything we can produce," said Chief Financial Officer Luca Maestri during today's earnings call.

The most valuable publicly traded company in the world has announced its final quarterly earnings results for the year. Surprise: they're pretty good, at least in relation to any other company in the world, and especially so for its music streaming service. The company made $46.9 billion in the last three months.

First, Apple's golden goose, the iPhone. A look at the past year's quarterly revenues for the world's most-praised smartphone illustrates a predictable curve:

Q4 '15 -- 48.04M devices, $32.2 billion

Q1 '16 -- 74.7M units, $51.63 billion

Q2 '16 -- 51.19M units, $32.85 billion

Q3 '16 -- 40.39M units, $24.04 billion

Q4 '16 -- 45.51M units, $28.16 billion

Phones are announced in the fall. People buy phones. Fourth-quarter revenues tick upwards, then first-quarter earnings results explode thanks to the holidays and upgrades, before dwindling either in anticipation of the upcoming iPhone or from new ownership of the most recent iteration. Rinse, repeat, on a grand scale; the sum of all other revenue sources combined in the first quarter of this year were less than half of just that of the iPhone.

However, you likely noticed the dwindling high-water mark of revenues and units. (This is why Apple would be more than happy to benevolently ensure your business for a couple more years.) To that end, Chief Financial Officer Luca Maestri said he expects the company to surpass the all-time revenue mark the company set last December.

For the music industry, all eyes dart to the opaque "Services" line within Apple's financial statements. For this quarter, that number has hit an all-time high of $6.32 billion. "We have almost doubled the size of our services revenue in the last four years -- we expect it to be the size of a Fortune 100 company in fiscal 2017," CEO Tim Cook said during today's earnings call.

Cook noted that music revenues had increased 22 percent this year.

Those "services" include Apple Pay, AppleCare, licensing and, most visibly, Apple Music. "Services" brought in revenues of $5.08 billion in the fourth quarter of 2015, a quarter that would not have included any subscribers to Apple's premium-only music streaming service because of the three-month trial all new users were given from the time of its launch on June 30, fifteen months ago. However, first-quarter 2016 results reflected a large, billion-dollar increase there, to $6.05 billion (it subsequently dipped to $5.97 billion in the third quarter of this year), which reached that new high of $6.32 billion, which CEO Tim Cook characterized as having "incredible momentum" in the company's statement.

Since launch, the service has now drawn 17 million customers, each paying $9.99 a month -- $169.3 million in quarterly gross revenue to the bottom line of that "Services" category. This is not that much money to Apple. A billion dollars isn't either, frankly.

What's invaluable, however, is attention, which Apple Music's exclusive releases have provided ably. Five albums released exclusively on Apple Music this year -- including Drake's wildly successful Views and Frank Ocean's long-anticipated sophomore album, Blonde -- have reached No. 1 on the Billboard 200 album chart. This is maybe why Jimmy Iovine, one of the principal music executives at Apple, said recently that they had no plans to stop paying good money for them. (Drake's deal alone was worth a reported $19 million.)

That response was in the wake of venom from Kanye West towards the practice of exclusive releases on streaming services, which he said was "f---ing up the music game." (Whether his concern was entirely altruistic is another matter.)

As Iovine told Billboard earlier this year: "Apple Music is a big idea and it’s going to take some time to fulfill its overall dream."


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