Share of Apple customers who use each service

Sherwood News

How Apple keeps making money off you in between iPhone purchases

As Apple dismantles its walled garden, other services revenue could become more important.

8/26/24 10:34AM

Apple’s services segment is increasingly important to its bottom line as a critical revenue source to counterbalance its slowing hardware sales.

Services, which accounts for a quarter of the iPhone maker’s revenue but more than 40% of its gross profit last quarter, is also under siege on multiple fronts.

For one, regulators have been successfully pushing the company to open up its walled garden, by allowing third-party apps to replace its native ones. That’s important because the company could lose some of the income it derives from fees associated with things like the App Store and Apple Pay as consumers get more alternatives.

And even Apple competitor Google’s problems might become its own problems. To remedy its monopoly, Google could be forced to ditch its exclusive deal Apple to make it the default search engine on iPhones. Apple, makes tens of billions of dollars a year from that deal, which, as Business Insider’s Peter Kafka has pointed out, is a huge component of Apple’s services revenue.

That means that other types of service revenue could become more important to Apple.

New data from market research firm Consumer Intelligence Research Partners (CIRP), which surveys people who recently purchased Apple products, provides a look into what those might be.

CIPR found that iCloud remains one of the most popular services, with about two thirds of recent Apple buyers paying for the service. It’s followed by Apple Music and Apple Podcasts.

CIRP doesn’t ask consumers about their App Store usage or search habits because they don’t have much discretion in that matter — nor would they be able to accurately pick out how many apps they’ve downloaded or how much they’ve transacted on them — but those are major contributions to services revenue.

“The services that we're listing here, the consumers do have choice,” Michael Levin, CIRP partner and cofounder, told Sherwood. “You don't have to use iCloud. You could use Dropbox, you could use Google Drive.”

The share of Apple consumers using AppleCare on their iPhones, though, is pretty low, partly because customers can get insurance from their carriers or retailers.

“AppleCare, if they're like anybody else, is insanely profitable.”

Jon Keegan13h

FT: Meta considering “tens of billions” in new capital to fund AI

Just days after Google announced a monster $85 billion upsized equity raise, the extremely profitable Meta is seeking to sell “tens of billions of dollars” in stock, according to a new report from the Financial Times.

Meta is planning on spending between $125 billion and $145 billion on AI capital expenditure this year alone.

Shares dropped more than 5% on the news.

Meta weighs big equity raising after blockbuster Google deal

Rani Molla

18h

Meta is supercharging its subscription businesses

The free-app giant never really cared about recurring revenue. Now, it’s launching paid plans for all sorts of stuff.

Jon Keegan19h

FT: Anthropic staff helping the NSA use Mythos for offensive cyberattacks

Anthropic’s Mythos AI model was deemed too dangerous to release to the public, with the company citing its ability to orchestrate novel cyberattacks.

And that’s just what the National Security Agency is doing, with the help of Anthropic staff embedded at the agency, according to a report from the Financial Times.

Only a small number of companies and US allies have been given access to the advanced model, which means America’s adversaries have not had the chance to shore up their defenses against the AI model’s new offensive capabilities.

The arrangement is especially unusual as the Pentagon has deemed Anthropic’s AI a national security supply chain risk — effectively blacklisting it for defense work — in response to the company’s refusal to allow its technology to be used for any legal application, which could include autonomous killing or mass surveillance. Anthropic is currently suing the US government to fight the determination.

US National Security Agency using Anthropic’s Mythos for cyber attacks

Rani Molla20h

Longtime Tesla bear JPMorgan upgraded Tesla and raised its price target to $475 from $145

For more than a decade, JPMorgan was Wall Street’s most stubborn Tesla skeptic, anchored by auto analyst Ryan Brinkman’s strict focus on traditional car fundamentals and near-term delivery numbers.

But JPM recently handed coverage of the stock to a new analyst, Rajat Gupta, who is throwing that playbook out the window. In a note Friday, the firm upgraded Tesla to “neutral” from “underweight” and raised its price target 228% to $475 from $145. (The analyst consensus on FactSet is $403.) Instead of focusing on the company’s struggling vehicle business, the new analyst is orienting himself more toward Tesla’s idea of the future, now modeling Tesla’s physical AI and robotaxi fleets all the way out to the year 2040.

Here are the main reasons for the capitulation:

Looking past the car lot: Gupta argues that Tesla “is at the forefront of physical AI, entering uncharted TAMs” and therefore “deserves the benefit of the doubt to be valued on LT earnings potential” rather than near-term speed bumps.
Unmatched vertical integration: Tesla’s control over everything from battery cells to custom silicon gives it a massive moat. JPM notes this starting point advantage is “unmatched at an industrial level scale” and “still somewhat under-appreciated and misunderstood.”
The AWS flywheel effect: Deploying Optimus robots inside its own factories “should not only lower COGS for the base automotive business, but more importantly, help validate the product at an industrial scale.” Gupta called it “a classic flywheel effect, somewhat analogous to AWS and Kiva at AMZN.”

For Tesla bulls who have argued for years that this is an AI company and not a carmaker, JPM’s sudden $3.9 trillion valuation model is the ultimate validation.

Anthropic ponders self-improving AI

Anthropic says Claude already writes 80% of its code. A new post asks what happens when the models can improve themselves — and whether anyone could stop them.

Jon Keegan20h