Apple's Services Category Set to Be the Company's Main Revenue Driver Over the Next Five Years

Apple's services revenue is growing at a rapid pace and is on track to be the company's primary revenue driver in the future, according to a note Morgan Stanley analyst Katy Huberty shared with investors this morning (via Business Insider).

Huberty believes that over the course of the next five years, services revenue growth will contribute more than 50 percent of Apple's total revenue growth. The iPhone, meanwhile, will make up just 22 percent of revenue growth during the same time period, despite the fact that it's contributed 86 percent of Apple's revenue growth over the past five years.

appleservices

Although "over the last five years, the vast majority (86%) of Apple's 8% annual revenue growth was driven by iPhone sales, it is through monetization of Apple's Services business that we see the company still generating mid single digit revenue growth," she said.

Huberty estimated that roughly 60% of revenue growth is now attributable to services. That, coupled with wearables, like the Apple Smart Watch, "will drive almost all of Apple's growth over the next five years," she added.

For the last several years, Apple's services category has been setting continual quarterly revenue records thanks to its rapid growth. In the first fiscal quarter of 2018, for example, services brought in $8.5 billion, up 18 percent year over year.

The services category includes iTunes, the App Store, Apple Music, iCloud, Apple Pay, and AppleCare.

According to Huberty, services revenue is at roughly $30 per device, up from $25 two years ago, but that might not be an accurate reflection of actual spending. Most Apple users do not currently pay for services, which could mean that revenue per active user is well above and "possibly double" the $30 metric.

appleservicesrevenuefuture
Just 18 percent of Apple's total device installed base subscribe to paid Apple services, which means there's a lot of potential for growth in recurring revenue sources. Apple Music, iCloud, and Apple Pay are all services that Huberty believes have yet to be fully monetized.

Apple Music, as an example, has seen considerable growth since its launch and now boasts over 36 million subscribers. Just 2.9 percent of Apple customers subscribe, however. Apple Pay usage is also low, despite the fact that it's available in more than 50 percent of retail locations in the United States.

According to Huberty, Morgan Stanley is confident in Apple's growth through services monetization, with the firm setting a price target of $203 on Apple shares, which are currently trading at ~$170.

As Tim Cook often says, Apple's services category has already reached the size of a Fortune 100 company, and Apple has set a goal to double its 2016 services revenue by 2020, a target the company is well on its way to hitting.

Related Forum: Mac Apps

Popular Stories

Apple Announces Special Event in New York Feature

Apple Announces Special Event in New York, London, and Shanghai on March 4

Monday February 16, 2026 6:05 am PST by
Apple today announced a "special Apple Experience" in New York, London, and Shanghai, taking place on March 4, 2026 at 9:00am ET. Apple invited select members of the media to the event in three major cities around the world. It is simply described as a "special Apple Experience," and there is no further information about what it may entail. The invitation features a 3D Apple logo design...
M3 iPad Air

Apple's Next Two Products Are Coming Soon

Thursday February 12, 2026 11:17 am PST by
Apple plans to release an iPhone 17e and an iPad Air with an M4 chip "in the coming weeks," according to the latest word from Bloomberg's Mark Gurman. "Apple retail employees say that inventory of the iPhone 16e has basically dried out and the iPad Air is seeing shortages as well," said Gurman. "I've been expecting new versions of both (iPhone 17e and M4 iPad Air) in the coming weeks."...
iphone 17 pro dark blue 1

Gurman: iPhone 18 Pro Could Be Underwhelming

Monday February 16, 2026 4:24 am PST by
Apple's upcoming iPhone 18 Pro and iPhone 18 Pro Max models "won't be a big update," according to Bloomberg's Mark Gurman. In the latest edition of his "Power On" newsletter, Gurman said that the iPhone 18 Pro models will "represent minor tweaks from last year's iPhone 17 Pro and 17 Pro Max." He compared the upgrade to Apple's past practice of appending the letter "S" to its more minor...
Coffee Burgundy and Purple iPhone 18 Pro Mock

Five iPhone 18 Pro Features Revealed in New Report

Friday February 13, 2026 8:43 am PST by
While the iPhone 18 Pro and iPhone 18 Pro Max are still seven months away, an analyst has revealed five new features the devices will allegedly have. Rumored color options for the iPhone 18 Pro models In a research note with investment firm GF Securities on Thursday, analyst Jeff Pu outlined the following upgrades for the iPhone 18 Pro models: Smaller Dynamic Island: It has been rumored...
Apple Announces Special Event in New York Feature 1

Apple Event on March 4: Here's What to Expect

Tuesday February 17, 2026 8:08 am PST by
Apple on Monday invited selected journalists and content creators to a "special Apple Experience" on Wednesday, March 4 in New York, London, and Shanghai. At an Apple Experience, attendees are typically given the opportunity to try out Apple's latest hardware or software. Following the launch of Apple Creator Studio last month, for example, some content creators attended an Apple Experience...

Top Rated Comments

dan110 Avatar
103 months ago
This my friends, is why we're going to start seeing subpar hardware offerings for the foreseeable future. The "Apple" of old is dead. The new Apple will be all about the services. Which is even more scary because it seems like they're not taking that part of the business seriously.
Score: 21 Votes (Like | Disagree)
103 months ago
If this means I'm going to be interrupted before or during even more tasks by an unwanted and annoyingly persistent interstitial dialog pushing Apple services, I'm out.

Having to work out how to dismiss the Apple Music pitch page every other day or so is already making me wonder why I'm paying Apple to 'not be the product'. It's not hard guys, I've disabled Apple Music in my settings. You want to know if I'm interested in signing up, there's your answer. It was annoying enough when iTunes would always default to the store rather than your library, but Apple increasingly seem to be losing sight of the customer in their focus only on pushing extra up-sell.

Amazon can offer me that experience for far less.
Score: 16 Votes (Like | Disagree)
AppleScruff1 Avatar
103 months ago
Get every last dime out of us!
Score: 13 Votes (Like | Disagree)
103 months ago
I find that really hard to believe. I think iPhone will continue to be the main revenue driver.
Not revenue in absolute terms, but contribution to revenue growth.
Score: 12 Votes (Like | Disagree)
Scottsoapbox Avatar
103 months ago
Main contributor to revenue GROWTH people.

Because the smart phone market is saturated and upgrade cycles are lengthening. This does not mean iPhone sales won't still be a huge part of revenue.
Score: 11 Votes (Like | Disagree)
east85 Avatar
103 months ago
Glad to hear Apple will be profitable in providing services without selling out user privacy and data. Google would be wise to take note here, but we all know they won't.
Score: 9 Votes (Like | Disagree)