iPhone Supercycle Or Not, Services Segment Could Be A Big Growth Driver For Apple Inc. (NASDAQ:AAPL) Stock In 2018.
We are in the last month of 2017, and, investors and analysts are already talking what about could be the key drivers of Tim Cook led Apple Inc. (NASDAQ:AAPL) stock next year. Apple stock has had a great outing in 2017 with more than 46% gains in the year-to-date. Now, shareholders are looking forward to what's in store for AAPL stock in 2018. Wall Street is betting on the much talked about iPhone supercycle driven mainly by the iPhone X sales to be the key driver of the Cupertino, California-based company shares in 2018. Investors would be hoping that for Apple stock to breach the psychologically important $200 mark is just a matter of time. Well, coming to growth catalysts for AAPL stock in 2018, iPhone Supercycle Or Not, whether iPhone X turns out to be a mega hit or not, Apple Inc's service segment could be a big growth catalyst. Here's Why.
Services segment outlook looks bright in 2018.
We at Amigobulls in our past coverage had highlighted several times how Apple's Service's segment, which is already the size of a Fortune 100 company, contributing to the company's growth. The services segment includes revenue from AppleMusic, AppleCare, Apple Pay, app store, licensing and other services has grown at a CAGR of over 23% in the last 5 years. Now, if you go by 2018 predictions of analytics company App Annie, then the services segment of the tech behemoth is likely to have another stellar year. According to App Annie's Top Predictions for the App Economy in 2018, the worldwide consumer spends across all mobile app stores including Apple app store and Android app stores will grow approximately 30% year over year to exceed $110 billion in 2018.
The report also suggests that China will continue to lead app store consumer spend in 2018. This is really good news for Apple services segment, as, China also happens to be the top market for iOS App Store consumer spend. Despite recent negative sentiment due to removal certain apps from the iOS App Store in China, the consumer spending should continue to be strong in 2018 as well. With app store revenue contributing a significant portion of the services revenues, this report forecast really bodes well for Apple stock.
Augmented Reality (AR) could give a big boost to App store revenues in 2018.
App Annie's report also predicts that Augmented Reality (AR) will put forward a giant step in realizing its massive potential in 2018. Apple's ARkit is considered to be one of the major leading drivers of AR coming to life next year. Another recent report from ARtillry, an immersive-technology research company suggests that the enterprise AR market will jump to $47.7 billion in 2021 from $829 million in 2016 while consumer AR will reach $15.8 billion in 2021 from $975 million in 2016. Well, 2018 is believed to be the year when AR starts catching up with consumers as well. From September 2017 only, according to App Annie data, there has been a drastic rise in iPhone app downloads for the top ranking apps by “Augmented Reality” app store search. Apple is the only company which has more than 500 million devices that support AR via its ARKit, iOS 11. All these forecasts are very favorable for the tech giant's services segment's prospects in the coming year.
Apple stock looks good for 2018 as well.
We have remained bullish on Apple stock for a while now and we believe that AAPL stock looks good for 2018 as well. Apple stock has been part of our top stocks to buy portfolio (which has outperformed the Nasdaq Composite by over 130%) for several quarters. Coming to the services segment tailwind, it's not just the growth of the service segment, but also the strong margins which will be key to driving Apple stock higher from here. A Piper Jaffray study estimates that the services segment has a gross margin of around 60%. Apple Pay and Apple music are also showing strong growth. A recent report suggested Apple pay has even bettered Paypal (NASDAQ:PYPL) to become the most accepted alternative payment method in terms of retail acceptance in North America. All the trends look very good for the company's services segment. With the strong growth prospects ahead, the tech giant could achieve Tim Cooks target of doubling services revenues by 2020 even much earlier. iPhone X hit or miss, Apple stock could benefit big time from the services segment tailwind in 2018.
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