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Apple: Software Tilt With Increasing Services Revenues

Oct. 01, 2021 1:38 PM ETApple Inc. (AAPL)MSFT, SSNLF18 Comments
Chetan Woodun profile picture
Chetan Woodun


  • More than just the iPhone, the iMac, and the iPad, Apple is also about a wide array of software tools together with services that are bundled into product sales.
  • With an expanding user base and increased monetization of assets, the company is expanding its Appstore as part of the app economy.
  • With a high degree of vertical integration, Apple's closed-loop confers protection against competition.
  • Its growing tilt towards software and services should be rewarded and the company will be valued accordingly.
  • Finally, as a high growth stock, volatility should be there due to inflationary concerns, but the company is cash-rich.

Apple CEO Tim Cook Delivers Keynote At Annual Worldwide Developers Conference

Justin Sullivan/Getty Images News

Analysts love to talk about the iPhone, often downplaying it when comparing the number of devices sold with respect to other smartphones, like Samsung's (OTCPK:SSNLF) Galaxy S21. However, it is important to go deeper into the software

This article was written by

Chetan Woodun profile picture
My aim is to provide differentiated insights, whether it is for investing, trading, or informational reasons. For this purpose, I am not a classical equity researcher or fund manager, but, I come from the IT world as the founder of Keylogin Information and Technologies Co. Ltd. Thus, my research is often backed by analytics and I make frequent use of charts to support my position.I also invest, and thus, in this tumultuous market, I often look for strategies to preserve capital. As per my career history below, I have wide experience, initially as an implementer in virtualization and cloud, and I was subsequently a team leader and project lead, mostly working in telcos.I like to write around themes like automated supply chains, Generative AI, telcos Capex, the deflationary nature of software, semiconductors, etc and I am often contrarian. I have also covered biotechs.I have also been an entrepreneur in real estate ( a mediocre one), a business owner, and a farmer, and dedicate at least 5 hours per week to working on a non-profit basis. For this purpose, I help needy families by providing sponsored work and contributing peer reviews and opinions for enterprise tech.I have been investing for the last 25 years, initially in mutual or indexed funds before later opting for individual stocks. Got a lot of experience in the 2008/2009 downturn when I lost a lot due mostly to wrong advice. Since then I do my own research and have fallen in love with Seeking Alpha because of the unique perspectives it provides to someone investing hard-earned money as well as access to some of the best analysts.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of XLK either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing. The research work for this article was done with Bhoshan Woodun, who also helped in the editing.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (18)

the new generation profile picture
The reason why they don’t report Their software revenue is it because the lost of the big Case suits against epic games it’s not in the interest of Apple to report now the revenue when you can be bad for the stock they’re going to report only after they need to report in by then the iPhone 13 sales in other hardware Apple sales will be so high that it’s going to overcome the disappointment of Apple software lost
Unfortunately, the Pandemic isn’t over yet. Delta variant is still a dangerous virus!! WFA still the reality.
04 Oct. 2021
Since 2017, Ave annualized earnings growth for Apple is below 13%. How is that high growth?
shoemakerdds profile picture
@RSSP At 13% annualized growth ,Apple growth doubles every 5. 5 years. For the world’s largest and possibly best managed company , 13% annualized is awesome.I have been a principle in many businesses through several decades. Business is tough, competitive as many of us have experienced! The bleacher seating is comfortable and easy to shout from! Shedding sweat, blood in the business arena hits us hard bringing reality, perspective and respect for 13% annualized growth rates. Apologies please, but some of us tire from the frequent diatribe from the bleachers!
@shoemakerdds Amen brother
Hudson Investments profile picture
So why is AAPL down so much?

In my opinion, this is what is called nearing “capitulation”. Or to say it another way, this is a severe oversold point in the life of FAANG stocks.

Can it go down more? Sure, and will. However, cash positions are rising and there will be a point where FAANG stocks will come back into favor again because they are generating cash. Free cash flow is the hallmark of the stocks in this group.
InvestingIdeas profile picture
@ArnieW Capitulation? We are 40% above the 52 week low.
This isn't close. If you want capitulation check out Chinese stocks, it's the feeling where there is no limit to how low a stock can go.
Hudson Investments profile picture
Hey transitioned to high margin recurrent services revenue means higher P/E multiple.
Chetan Woodun profile picture
@ArnieW Yes, good point.
“Coming to competitive positioning, many analysts were disappointed with the September 14th product announcement day and the market reacted accordingly, punishing the iPhone maker's stock”

This is odd. Apple gave the consumers three things they value most. The cameras were improved, battery life was greatly improved, and prices were not raised. In a sense, the new phones are cheaper as there is more storage for the same price. As usual, the pundits are at odds with consumers.
Chetan Woodun profile picture
@neutrino23 Yes, for me as a user its great, but I think that the pundits just like glossy outside looks
@neutrino23 Precisely
SEC Investigator2 profile picture
On paper apple has about $131B in cash less debt. In reality Apple has over $200B in cash because it’s debt payments are less the dividends and interest it receives from investments.
What about EV??
Chetan Woodun profile picture
@kkots I think that either you missed the article platform to comment or have not read the article completely
shoemakerdds profile picture
@kkots Ev? Crowded field, lack of service centers, currently comparative lack of scale, 2% ev sales penetration currently? Many great points mentioned that are impressive now and in the near future. The Apple in my sight is enough since the Apple ev is not now discernibly visible in my windshield. Good read , thanks.
Chetan Woodun profile picture
@shoemakerdds Thanks a lot for your appreciation. It is only the beginnning.
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