Is Apple Leaving Billions on the Table?

Apple Inc. (AAPL) is trying to grow the non-iPhone services portion of its business but it could be leaving potentially billions of dollars on the table in terms of subscription revenue.

That’s according to Gene Munster, the longtime Apple analyst who now runs Loup Ventures. He told CNBC that as it stands 30% of the Cupertino, California-based iPhone maker’s services revenue comes from subscriptions, which means there is a lot of room for that portion of the business to grow.  The Wall Street analyst pointed to Apple’s pro apps as an area where it can extend subscriptions.

Apple ProApps Could Make Good Subscriptions

Apple’s suite of ProApps, which CNBC said are mainly used by the audio and visual industries, requires customers to purchase them either the physical software or as a download. The software, which includes Final Cut Pro X, Logic Pro X, Motion, Compressor and MainStage 3 sells for separate prices or as a package for $630 reported CNBC. But that is the old way of doing things before cloud computing exploded, ushering in this new era of making money off of digital subscriptions. Apple could overhaul that business model, host the applications in the cloud and charge customers a monthly fee to access them, argued CNBC, noting that as of the end of 2017 Apple had 2 million users for Final Cut Pro X alone. (See also: Bernstein: One Time Items Pushed Apple Services.)

When it comes to subscriptions, Apple’s focus has been on the consumer side of things with Apple Music and its iCloud storage services. Customers pay monthly to stream music and to store data on the cloud. Apple also has its App Store, iTunes, Apple Pay and AppleCare under its services arm. As of the middle of April, Apple Music has more than 40 million subscribers, which The Wall Street Journal, citing an internal email by the company at the time, is up 11% from two months earlier. For its fiscal second quarter, Apple services revenue increased 31% year-over-year to $9.2 billion in revenue. (See also: Apple Traders Bet Stock Will Rise 9% to New Record.)

Apple Needs to Find New Growth

For the iPhone maker branching more into services is becoming increasingly important as the smartphone market gets more saturated and consumers hold on to their mobile devices for longer. As a result, Munster of Loup Ventures thinks services revenue will account for 20% of all of its revenue by 2023, reported CNBC, noting that subscriptions services could be focused on augmented reality, artificial intelligence and video in the future.

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