What Are The Apple 'Services' That Are Doing Well As The iPhone Struggles?

While Apple Inc. AAPL watchers have focused on struggling iPhone sales, some were surprised this week when the company reported a slight earnings beat and some optimism despite slowing sales of its signature product.

The company reported iPhone revenue that was down 15 percent year-over-year, mostly because of weak sales in China.

But Apple officials said “services” revenue set an all-time record at nearly $11 billion in the December quarter, up almost 20 percent.

So what is Apple doing that has CEO Tim Cook so upbeat?

Wearables

Apple's “Wearables, Home and Accessories” category used to be lumped in with “Other Products," since they weren't the core computers and smartphones.

Not anymore, thanks to the Apple Watch. Wearables could make a nice company on its own.

“Based on revenue over the past four quarters, our wearables business is approaching the size of a Fortune 200 company,” Apple Chief Financial Officer Luca Maestri said on the earnings call. The category grew 33 percent, up more than $1.8 billion year-over-year.

And it wasn’t the first time the category — which also includes AirPods, Beats and the HomePod, among other products — set a quarterly revenue record. It did so in the previous quarter as well.

Cook has said recently he thinks the Apple Watch, with its abilities to help people monitor their own health, will be among the most important products for the company.

“I believe we're just beginning to see the impact we can make on health and deeply inspired by the possibilities,” the CEO said Tuesday. 

Apple Pay

Apple’s remote payment system Apple Pay did well over the holidays, with nearly 2 billion transactions, more than twice the number from a year earlier as merchant adoption continued to grow.

Customers can use Apple Pay on their iPhone or Apple Watch at a growing number of places, Cook said, predicting a bump in the near future when it is available at Target Corporation TGT and Yum! Brands, Inc. YUM-owned Taco Bell locations. He also touted Apple Pay's recent launches in Germany, Belgium and Kazakhstan.

Apple Music

More than a decade after it launched the iTunes store, Cook said Apple generated its highest quarterly music revenue ever in the December quarter. Its streaming service, Apple Music, now has more than 50 million paid subscribers.

That’s still behind industry leader Spotify’s 87 million reported users, and it’s not clear how central the streaming service will be to Apple's product mix. But Apple has added partnerships for music users to boost the service, and was reportedly considering earlier this winter a deal with iHeartMedia Inc. IHRTQ’s iHeart radio, though there’s been no news lately.

Apple News

Cupertino isn’t just signing on new listeners, but readers too.

Apple News also set a new record in the quarter with 85 million monthly active users in the United States, the U.K. and Australia. Cook cited Comscore data showing Apple News has the largest news app audience, and predicted it will grow more as it launches in French and English in Canada.

The ad-delivering Apple News site has tried to separate itself as social media companies have gotten blasted over the role they may have played in spreading misinformation in the 2016 presidential election.

Apple News touts its practice of putting human editors ahead of algorithms in choosing stories that show up on Apple News.

Related Links:

Wall Street Reacts To Apple's Q1 Earnings, Guidance

Apple Watches Could Be Covered by Insurance, In Boost To Wearables Sector

Photo by Daniel Lu/Wikimedia.