Another key area of growth is Apple’s services revenue, which made up 19.8% of Apple’s total revenue in FY2022.
According to Apple’s CFO, Luca Maestri, there were some areas of weakness, such as digital advertising and gaming on the App Store.
However, management was happy with the engagement with its Services.
The weaker demand for digital advertising is reflected as growth in services moderated to 4.98% in Apple’s Q4 FY2022.
One of the key areas that attracted me to Apple’s services business segment is the growing subscription number.
According to Luca Maestri, there are 900 million paid subscriptions on Apple’s platform, which is double what it was three years ago.
Apple’s services division achieved over US$78 billion in revenue during fiscal 2022, a new record and up 14% yoy.
It is currently already the size of a Fortune 50 business on its own and has nearly doubled during the last four years.
Downside risks remain with China factor
The near-term and long-term challenges for Apple remain with its reliance on China.
The company is known for the resilience of its supply chain but given the COVID-Zero policy in China and the fragile US-China relations, Apple’s exposure to China is its biggest downside risk.
In the near term, this will continue to affect Apple, but the company is already gradually moving some of its production to India.
Since 2017, Apple has already started to assemble smartphones in India and has plans to make India a key manufacturing hub by 2025.
Another concern is Apple’s reliance on its China business. The iPhone is popular in China but the deteriorating relations between the US and China could affect some of this demand.
Nonetheless, it would be unfair to punish Apple for its success in China and I believe that the company has shown that it is capable of navigating through these challenges.
Given the potential in its services revenue, the resilient brand name, its integrated ecosystem and sustainable demand, I believe long-term investors will find the reward of buying into Apple stock to be worth the near-term risks.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.