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Will Apple's (AAPL) Services Continue its Good Run in Q4?

Apple Inc’s AAPL Services segment, which includes revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, licensing and other services, is in top gear.

Revenues from this segment are now equal to that of a Fortune 100 company. In the third quarter, revenues from this segment grew 22% to $7.3 billion, representing 16% of the total revenues and were second only to iPhone. However, the difference in revenue share is huge. The iPhone segment contributed 54.6% to revenues in the third quarter.

This indicates that the Services Segment has more room to run as Apple has created a very tight ecosystem between its hardware and software. People using/buying iPhones, iPads and other Apple hardware will eventually be exposed to Apple’s services and this spells big opportunity.

Apple Inc. Price and EPS Surprise

Apple Inc. Price and EPS Surprise | Apple Inc. Quote

Much of the growth comes from App Store and this quarter isn’t going to be any different. Given the release of iOS 11, App Store revenues are expected to benefit owing to its complete revamp. There is now a dedicated games tab on the App Store.

Apple Music has also seen phenomenal growth with over 30 million subscribers. In fact, the number of paid subscriptions across Services segment is now more than 185 million.

Apple Inc. Revenue (TTM)

Apple Inc. Revenue (TTM) | Apple Inc. Quote

Apple Pay is another catalyst. The company, in the last reported quarter, claimed that Apple Pay is the number one NFC payment service on mobiles, comprising 90% share of overall transactions. Apple Pay is available in 16 markets. The app now features peer-to-peer payments services.

For the fourth quarter, the Zacks Consensus Estimate for revenues from iTunes, Software and Services is $7.61 billion, up 20.4% from the actual figure reported in the prior-year quarter.

Apple is scheduled to report its fourth-quarter 2017 earnings on Nov 2 after market close.

At present, Apple carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stay tuned as we bring you more on Apple ahead of the upcoming earnings announcement.

Stocks to Consider

Here are some stocks that, as per our model, have the right combination of elements to post an earnings beat this quarter:

Alibaba Group Holding Limited BABA with an Earnings ESP of +2.52% and a Zacks Rank #3.

Kemet Corp. KEM with an Earnings ESP of +7.46% and a Zacks Rank #1.

NVIDIA Corp. NVDA with an Earnings ESP of +0.53% and a Zacks Rank #1.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

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