On Tuesday, Bernstein maintained its Market Perform rating on Apple Inc. (NASDAQ:AAPL) with a consistent price target of $195.00. The firm's analysis highlighted Apple's strategic shift towards its services sector, which has seen significant growth from 15% to 22% of total revenues over the past five years. This change has contributed to improved gross margins and has been instrumental in the re-rating of Apple's stock.
Apple has recently utilized pricing strategies to further enhance its services revenue. Notable price hikes have been implemented across several services, including a 100% increase for TV+ over 16 months, and adjustments to the pricing for Music, News, and Apple Arcade since the end of the 2022 fiscal year. These increases alone are estimated to have boosted services revenue growth by 1.3 percentage points year-over-year, and gross and operating profits by approximately $1 billion.
For the 2024 fiscal year, the company is projected to see additional revenue growth of 1.4 percentage points year-over-year from these price changes, potentially increasing gross and operating profits by $1.2 billion. Apple has also increased iCloud storage prices by 25% in several countries, and a global rollout could further support revenue growth.
Despite these initiatives, the growth rate of Apple's services is anticipated to slow, with a forecasted revenue increase of 11% for the fiscal year 2024, marking the third consecutive year of growth below 15%. This is a downturn from the 22% compound annual growth rate observed over the past decade. The future growth of Apple's services is expected to be influenced primarily by the performance of Advertising/Google payments and the App Store, which together account for 60% of services revenues, as well as the company's ability to launch new services offerings.
InvestingPro Insights
As Apple Inc. (NASDAQ:AAPL) continues to expand its services sector, the company's financial metrics provide a deeper understanding of its current market position. According to InvestingPro data, Apple boasts a significant market capitalization of $2.89 trillion, underscoring its status as a leading player in the tech industry. The company's Price to Earnings (P/E) ratio stands at 29, indicating a high valuation relative to near-term earnings growth. This is further reflected by the company's high Price to Book (P/B) ratio of 39.0 as of the last twelve months leading up to Q1 2024, suggesting a premium valuation in the market.
Despite recent price hikes in Apple's services, revenue growth has slightly declined by 0.47% over the last twelve months as of Q1 2024. Nevertheless, the company has seen a quarterly revenue growth of 2.07% in Q1 2024, which aligns with the strategic pricing adjustments mentioned in Bernstein's analysis. This growth contributes to Apple's robust operating income margin of 30.76% over the same period, demonstrating the company's efficiency in converting revenues into profits.
Among the InvestingPro Tips for Apple, two stand out in relation to the article's focus on Apple's services sector and its financial health. Firstly, Apple has raised its dividend for 12 consecutive years, reflecting a commitment to returning value to shareholders. Secondly, the company's cash flows can sufficiently cover interest payments, indicating a stable financial foundation that supports ongoing investments in its services growth. For readers looking to delve deeper into Apple's financials and strategic positioning, there are an additional 15 InvestingPro Tips available at Investing.com. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable insights.
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