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Apple Beats Market in 2019: Can It Maintain Momentum in 2020?

Aniruddha Ganguly

Apple AAPL has been one of the top-performing technology stocks in 2019 so far, thanks to its Services business momentum and wearables growth despite sluggish iPhone sales.

The Services business, which includes revenues from cloud services, App Store, Apple Music, AppleCare and Apple Pay, has become its new cash cow. The company had more than 450 million paid subscribers across its Services portfolio at the end of the fourth quarter of fiscal 2019.

Apple’s Services business in 2020 is expected to benefit from a robust App Store, which continues to draw the attention of prominent developers globally.

Robust App Store sales coupled with solid adoption of Apple Pay and Apple Music are expected to help Apple double its 2016 Services revenues by 2020.

Year-to-date Performance

Further, according to a Bloomberg report, Apple is planning to offer a bundle that will comprise Apple News+, Apple TV+ and Apple Music to expand the subscriber base.

Apple Pay & Apple Music — Key Drivers

The growing popularity of Apple Pay is a key catalyst. At the end of the fourth quarter, Apple Pay was available in 49 markets and had more than 6,000 users.

Notably, Apple Pay’s transaction volumes more than doubled year over year (3 billion in the reported quarter) and were four times that of PayPal PYPL.

Additionally, the Apple Card is expected to gain strong traction based on partnerships with major apps and retailers like Uber, Walgreens and T-Mobile.

Apple Music has also gained solid traction in the music streaming market, currently dominated by Spotify SPOT, which has 248 million monthly active users, including both paid subscribers and those who avail the service for free.

However, Apple reportedly has more than 60 million paid subscribers and doesn’t offer a free version of Apple Music.

Further, Apple Music’s availability on Google Play and Amazon Echo devices is expected to expand the iPhone maker’s footprint in the music streaming space. Additionally, the company is gaining from its tie-up with Verizon.

Expanding Services Offerings to Aid Prospects

Apple is also striving hard to maintain the momentum by launching new services like Apple News+, Apple Arcade and Apple TV+.

Notably, per CNBC, Apple News+ signed 200K subscribers within 48 hours of its launch in March, this year. Since then, the company has expanded the reach of Apple News+ to readers in Australia and the U.K.

The service, which offers popular publications including the Times of London, Hello Magazine, The Wall Street Journal and The LA Times, among others, charges $9.99 a month. Notably, for every subscriber of News+, Apple generates 50% of revenues.

Moreover, in September, the company launched Apple Arcade, its game subscription service. Priced at $4.99 a month, the service comes with a free trial and offers unlimited access to a catalog of more than 100 new and exclusive games.

Per Verge, the company is adding a subscription option of $49.99 per year along with its existing $4.99 monthly subscription option for Apple Arcade.

Apple TV+: A Major Contender in Streaming Space

Apple TV+ is expected to be a major driver for Apple, despite significant competition in the streaming space, currently dominated by Netflix NFLX. Disney’s DIS entry with Disney+ and Comcast’s CMCSA upcoming Peacock service are expected to intensify competition further.

Nevertheless, at $4.99 per month, Apple TV+ has undercut the pricing of every other streaming service provider. The company’s focus on expanding its original content portfolio, as indicated by the recent pick-up in hiring, is likely to be a major growth driver.

Moreover, the nomination of The Morning Show for multiple Golden Globe awards reflect Apple TV+’s content strength.

According to a CNBC report, Apple TV+ is expected to become a $9-billion-per-year business with 136 million paid subscribers by 2025, assuming that one in every 10 Apple users will pay for the service, as estimated by Morgan Stanley analyst Katy Huberty.

Apple Tops Wearables Tech Space

Apple’s wearables market domination is expected to continue in 2020 owing to the strong adoption of AirPods and Apple Watch. The inclusion of health features like ECG and fall detection in the Apple Watch Series 4 had been a game changer.

The solid adoption of Apple Watch Series 5 is now helping the iPhone maker strengthen its presence in the personal health monitor space. Notably, the watch is based on watchOS 6, which comes with additional healthcare and fitness features like Cycle Tracking, the Noise app and Activity Trends.

Zacks Rank

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

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Click to get this free report The Walt Disney Company (DIS) : Free Stock Analysis Report Netflix, Inc. (NFLX) : Free Stock Analysis Report PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report Comcast Corporation (CMCSA) : Free Stock Analysis Report Apple Inc. (AAPL) : Free Stock Analysis Report Spotify Technology SA (SPOT) : Free Stock Analysis Report To read this article on Zacks.com click here.