Apple's Future Growth Is Built on Services and Wearables

As Apple’s iPhone sales continue to plateau, the tech giant is fueling its growth with surging interest wearable devices and its ever-expanding suite of services, from Apple Card and Apple Arcade to the newly launched Apple TV+.

In the company’s Q3 2019 earnings, Apple reported $64 billion in revenue and beat expectations, growing 2 percent year-over-year despite iPhone revenue falling yet again after release of the iPhone 11 line. Though iPhones still make up more than half of the pie, Apple’s services revenue hit a new all-time high of $12.51 billion, or 20 percent of Apple’s revenue.

Apple’s big services at the moment consist of iCloud, Apple Pay, Apple Music, and the App Store, but its new additions such as Apple TV+, Apple News+, Apple Arcade, and the Apple Card represent a long, deliberate shift by the company. Recurring monthly subscriptions, credit card and transaction fees, and cloud storage costs are a far more consistent source of revenue as people wait longer to buy new smartphones.

The other big growth area for Apple is wearables and accessories. Customers aren’t buying as many iPhones, but devices including the Apple Watch and AirPods are now make up nearly as much of the company’s revenue as its Mac business. Wearables, smart home devices, and accessories made up 10 percent of Apple’s Q3 revenue compared to 11 percent for Mac hardware.

AirPods in particular have evolved from joke punchlines when they were first announced in 2016 to a ubiquitous societal status symbol. Like many of Apple’s innovations, people get used to them and before long, they start popping up everywhere.

Apple’s “hearables” shipments rose from 5 million in Q2 2018 to more than 15 million in Q2 2019. The company sits far atop the earbuds market in terms of total shipments, with Samsung, Xiaomi, Bose, and others trailing far behind. Google recently hopped on the bandwagon as well when it unveiled the Pixel Buds, which will be available next year.

Apple is hoping next year’s rumored 5G-enabled iPhone will revitalize its smartphone sales, but in the meantime, its wearables and services revenue will continue to carry more and more of the load. The tech giant is also pouring more money than even into research and development, so who knows when it’ll finally pull the curtain back on a truly game-changing innovation that resets the board.