Apple’s latest financial figures show that the Cupertino-based company generated more than $22 billion in Q4 2023 from iTunes, software and services, a jump of almost 17% on Q4 2022.
The news capped an exceptional year which saw total revenue for FY 2023 surpass $85 billion, a 9% increase on FY 2022. At this rate, Apple may become a $100 billion software-and-services company by next year, an incredible feat, an almost 10X increase over the revenues that segment generated back in 2013. To put that in perspective, that is more than the combined revenues of Salesforce, SAP and Adobe and second only to Microsoft. What’s even more impressive is that almost all of that comes from B2C as opposed to B2B for the overwhelming majority of the big hitters.
Instead of a single flagship product like Windows 11 or Microsoft 365 (ex Office 365), Apple’s revenue mix consists of iTunes, App store, Mac App Store, Apple TV+, Apple News, iCloud, Apple Books, AppleCare, Apple pay and more (including the venerable Filemaker). And there’s no cloud computing revenue as well, like Azure or Oracle Cloud.
Apple becoming a $100 billion software company
The company doesn’t publish breakdown of how much each of these bring in but given that Apple reached two billion active users in February 2023, that means that on average, every user spends about $42 per year on Apple software and services.
Apple SaaS is now second only to the mighty iPhone, which brought in a whopping $43.81 billion last quarter, and now accounts for a little less than a quarter of the overall sales at Apple. 2019 was the first year when SaaS and hardware were split; the earliest records show that for the 12 months ended September 2018, iTunes and the likes accounted for about 13% of revenues.
That means that in just just over 5 years, the proportion of revenue coming from SaaS has almost doubled, never has the saying, software eats hardware, sounded truer. And that’s important because margins on software are higher than on hardware and SaaS doesn’t suffer from supply chain hiccups like we saw during the COVID era.
Cost of sales represented 63% of products net sales last quarter. That number was only 29% for services. In other words, Apple made only 37c profit for every $1 in hardware revenue and 71c profit for every $1 in software sales, that’s almost 2x gross margin.