Is AAPL Stock a Buy As Apple Works to Grow Services Revenue?

  • Apple (AAPL) is reportedly restructuring its services business as the company moves to aggressively grow revenue.
  • Services is already Apple’s second largest division by revenue, and has been a big part of the AAPL stock growth story over the past several years.
  • With Apple down once again to start the week — and near its 2022 low — now is a great time to add this company to your growth portfolio.
Apple store. Apple Inc. (AAPL) sells consumer electronics, computer software, services and personal computers.

Source: Vytautas Kielaitis / Shutterstock.com

Amid the many challenges of 2022, Apple (NASDAQ:AAPL) has seen its stock value take a hit. That’s not unique to Apple. Many tech companies and other growth stocks have felt the impact of economic forces that have turned the market very conservative. AAPL stock slipped at the start of this week on news that the Shenzhen, China plant manufacturing iPhones and iPads would be shut down due to a Covid-19 outbreak. 

That kind of bad news has been par for the course for 2022 and it’s reflected in the performance of AAPL stock.

However, some interesting news about Apple was released on Monday and this time its something that investors should be happy about. The company is reportedly in the middle of restructuring its Services division. Apple sees the opportunity for increased revenue growth and is aligning executives to maximize this potential.

With AAPL stock hitting 2022 lows, the opportunity is there for investors to pick up shares at a considerable discount. Here’s why this news makes buying Apple stock an even more compelling move for long-term growth investors.

Ticker Company Current Price
AAPL Apple $147.41

Services Revenue Has Been Increasingly Important to Apple

It’s difficult to understate the importance of services revenue to Apple. In the decade after the iPhone was released, that was all analysts seemed to care about: monstrous iPhone revenue. But around 2018 or so, iPhone sales began to peak. That’s when the spotlight began to shift to Apple’s Services revenue. 

This division encompasses non-hardware revenue. Think Apple Music, Apple TV+, Apple Pay and even advertising. At this point, it is the company’s second-largest revenue generator ($19.8 billion in the most recent quarter) and its fastest growing — up 17% in the last quarter.

Reports surfaced on Monday that Apple has recognized the potential for wringing even more revenue out of services and has begun restructuring the division to maximize the gains. The moves include growing its Apple TV+ streaming service and maximizing advertising revenue. As mentioned by InvestorPlace contributor Mark Hake, previously leaked information related to the services push includes the possibility of offering hardware subscriptions.

Anything that substantially grows that Services revenue is good news for investors and for AAPL stock. Revenue growth is obviously important, but revenue that doesn’t require selling expensive hardware is even better.

Apple Is Still Selling Plenty of Hardware

I don’t want to downplay Apple’s hardware sales. Apple is in the position it is now — a company with a market capitalization of nearly $2.5 trillion (even in today’s market) — primarily because of hardware sales. Especially the iPhone. Don’t discount the iPad, Macs or wearables like the Apple Watch and AirPods, either.

Despite a saturated smartphone market that has weakened iPhone sales, they continue to be huge for Apple. And sales of Macs have defied market trends to post double-digit growth, even as global PC shipments shrink. This hardware business may be more susceptible to short-term economic issues like higher interest rates, but it isn’t going anywhere. 

The genius part of Apple’s business model is that the company has massive built-in audience for its various services. The iPhones, iPads, Apple TVs and Macs out there have Apple’s various services apps pre-installed. There is usually a free trial offered. As of January, that was a built-in potential subscriber pool consisting of 1.8 billion active devices. The company has just scratched the surface of what is possible. 

Apple’s growing Services revenue doesn’t depend on hardware sales, but Apple’s continued success there sure helps. And it’s a reciprocal relationship. Consumers who subscribe to Apple services are more likely to buy additional Apple hardware for the best experience.

Should You Buy AAPL Stock?

Apple stock earns a “B” rating in Portfolio Grader and it is a proven, long-term performer. So far, 2022 has been a year to forget for Apple investors. But it has also offered the opportunity to pick up AAPL stock at a discounted price. 

Given the current state of the market, AAPL stock may remain volatile for the short-term. There’s a risk that if you buy now — even with shares just barely above their low close for the year — they may drop further.

However, AAPL stock remains a solid bet for long-term investors. The news that Apple is restructuring its Services division to maximize revenue growth is just the latest signal that this is a company that will deliver returns. You just need to be willing to wait out the turbulence that has been the story in 2022 for most stocks in the tech sector.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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Article printed from InvestorPlace Media, https://investorplace.com/2022/05/is-aapl-stock-a-buy-as-apple-works-to-grow-services-revenue/.

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