There are times I read market and technology websites for insight, but more often in recent years I read them for the entertainment value because an infinite number of monkeys could write about the stock market and the technology industry with more accuracy.
Take the fools at The Motley Fool as an example. Is it possible for a group of writers to be more wrong about the stock market and business analysis? If they were monkeys, maybe.
Here’s the deal as I see it. Forever and awhile Apple has told the financial world, every quarter when it released financial information, how many Macs, iPads, and iPhones it sold. Nothing else. Just the big guns. Those days are gone. Apple will only divulge revenue and profits and a few other meaningful to meaningless stats for Wall Streeters and critics (is there a difference?) to chew into.
CFO Luca Maestri:
The number of units sold in any 90-day period is not necessarily representative of the underlying strength of our business
That’s partly because nobody else announced such numbers (not Samsung, not Amazon, not Microsoft, not Google, not HP or Dell or McDonald’s). Apple’s fast growing Services business– something of a catch-all for Apple Music, iTunes, Apple Pay, AppleCare, and more– is the market’s new darling.
Many of the headlines go something like this:
Apple Makes The Shift To Services
Uh, no it didn’t. And, uh, no it’s not. Apple is a hardware company. Services is but one component of a rather diversified revenue and profit portfolio. Repeat: Apple is not a Services company.
Management has been pushing investors to focus on its growing services business, which generated over $37 billion in revenue for the company last year.
No, Apple management has not been pushing investors in any direction, let alone Services. The company is required by law to disclose certain financials each quarter, and Apple chose to include Services because it has been growing; and Services shows how diversified Apple is these days.
That makes it the company’s second-biggest segment after iPhone.
That is all. Move along. Nothing to see here.
Yet, that’s not how market analysts and critics see it. Apple is transitioning to become a services company; Services which are based on customers which buy hardware. See how that works? Services are dependent upon hardware sales. Services can grow even while major hardware sales– Mac, iPhone, and iPad– remain mostly static.
Additional details like unique users, churn rate or switch rate, and lifetime value of a customer would be very useful for thinking of Apple as a services business. Breaking out things like App Store downloads, Apple Music subscribers, iCloud customers, or subscription services might give investors a clearer picture of what’s going on in the services business, too.
Yeah, none of that is going to happen. Apple is becoming a minimalist financial disclosure company so Wall Streeters and critics will get what they deserve. Minimalism. Historically, at least under the reign of CEO Tim Cook, Apple has been about unit sales, revenue growth, and profits. With a customer base exceeding a billion or so, Apple can change and control the narrative.
Apple’s management can move the focus to how much profit it’s making off of each active user. It can show investors how much each customer is worth to the company in terms of service attachments and expected lifetime value.
I like that. Simple. Elegant. Insightful. That narrative makes more sense than “Apple is transitioning to a services company.”