Growth of Service Revenue is continuing in Apple’s 2022 Q3 Results

Apple (NASDAQ: AAPL) announced its 2022 Q3 financial results on July 28, 2022. According to the announcement, total net sales, operating income and net income were up 2%, down 4% and down 11%, respectively (YoY, 3 months). In this regard, product sales was down 1% and services revenue was up 12%.

Looking at sales growth trends by region, Asia Pacific (excluding Greater China and Japan) recorded the highest growth of up 14%. It was followed by Americas of up 4% (YoY, 3 months). Japan recorded the worst sales growth of down 16% year-over-year.

Reviewing by product category, iPhone had the highest sales growth of up 3% (YoY, 3 months). Mac has the worst sales growth of down 10%.

In the last 9 months, cash generated by operating activities was up 17% (YoY). In addition, free cash flow was up 12%.

By the way, FCF margin was up 25% (up 110 bps, YoY, 9 months). However, sales growth in the last 9 months was only 8%. In this regard, service revenue accounts for only 19% of the total net sales. Accordingly, Apple’s medium-term goal could be making the ratio reach a level above 65%.

A logo of Apple TV.
Photo by James Yarema on Unsplash

Apple’s performance in the last quarter was not great. However, the company has steadily increased its percentage of its service revenue. This suggests that the cloud-based subscription business could become the main source of Apple’s revenue in the future. Since the FCF margin continues to grow along with the increase in the subscription revenue, medium or long term growth of Apple would be expected in the future. 

Apple Inc. (NASDAQ: AAPL) Stock Chart

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