Apple’s latest financials show that the Cupertino-based company generated more than $22 billion from iTunes, software and services in the fourth quarter of 2023, up nearly 17% from the fourth quarter of 2022.
The news capped an exceptional year in which total revenue for fiscal 2023 exceeded $85 billion, up 9% from fiscal 2022. At this rate, Apple could become a $100 billion software and services company next year, an incredible performance, a nearly tenfold increase over the revenues that segment generated in 2013. To put that in perspective, that’s more than the combined revenues of Salesforce, SAP and Adobe and is second only to Microsoft. What’s even more impressive is that almost everything comes from B2C, as opposed to B2B for the vast majority of major players.
Instead of one 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 is also no income from cloud computing, such as Azure or Oracle Cloud.
Apple is becoming a $100 billion software company
The company doesn’t publish a breakdown of how much each of these brings in, but considering Apple reached two billion active users in February 2023, that means each user averages about $42 per year about Apple software and services.
Apple SaaS now ranks second behind the mighty iPhone, which generated a whopping $43.81 billion last quarter and now accounts for just under a quarter of Apple’s total revenue. 2019 was the first year of SaaS and hardware split; The earliest data shows that iTunes and the like were responsible for the 12 months ending September 2018 approximately 13% of sales.
This means that in just over five years the share of revenue from SaaS has almost doubled. Never has the saying ‘software eats hardware’ been truer. And that’s important because margins on software are higher than on hardware and SaaS doesn’t suffer from the supply chain hiccups we saw during the COVID era.
Sales costs represented 63% of net product sales last quarter. That number was just 29% for services. In other words, Apple made just 37 cents in profit for every $1 in hardware revenue and 71 cents in profit for every $1 in software sales, which is almost 2x gross margin.