Despite the fact that $Apple (AAPL.US)$The performance guidance did not meet expectations, disappointing investors, but its service business and the growth potential in the India market may still help it rebound.

Apple's product revenue remains substantial, but its growth has stagnated since the 2021 fiscal year. The services business is the second largest business after the iPhone, and its growth continues to lead, despite facing a series of antitrust challenges globally, it is still expected to continue growing. In addition, opportunities in the India market cannot be ignored.

Here are some key points:

Unique Fourth Quarter

From a seasonal perspective, the just-ended fourth quarter is usually Apple's slowest quarter, but with two major exceptions. First, this quarter is usually back-to-school season, and Apple's Mac sales often increase, although this quarter's year-over-year Mac growth was only 2%, as the recent M1 Mac update came too late to have a significant impact on quarterly sales.

Additionally, the last week of the fourth fiscal quarter coincided with the release of the new iPhone, with a 9-day sales period for the new iPhone in this quarter. Despite not delivering outstanding performance, the iPhone department's revenue still grew by 6% year-on-year in the quarter, not exceptional but not bad either. This suggests that the demand for the iPhone 16 may not be as strong as expected, but also not as weak as some analysts predicted.

The impressive performance and threats of the services business

Despite apple's product revenue only growing by 4%, the services business achieved a 12% growth rate in this quarter, consistent with low to mid-double-digit growth for the fiscal year. In fiscal year 2024, service revenue reached $96 billion, accounting for about one-third of the company's total revenue.

Apple's services business is wide-reaching, but the main sources of revenue are the App Store and payments from Google for being the default search engine. Both of these major businesses are currently facing threats. Apple's 30% commission from the App Store is being challenged in many ways, especially in the EU, where the Digital Markets Act imposes various restrictions on the App Store. Although the EU App Store only accounts for 7% of Apple's total revenue, Apple still hopes to set a favorable precedent for similar policies that may be implemented in other jurisdictions in the future. In addition, Google's substantial payments to Apple are also under threat. In the recent U.S. v. Google case, it was revealed that Google paid Apple $20 billion in 2022, about a quarter of that year's service revenue. While the case has not yet reached the ruling stage, some analysts predict that the judge may cancel these payments. However, even if that happens, the lengthy appeals process may delay the implementation of the ruling, casting a shadow on Apple's revenue.

Furthermore, Google's substantial payments to Apple are also under threat. In the recent U.S. v. Google case, it was revealed that Google paid Apple $20 billion in 2022, about a quarter of that year's service revenue. Although the case has not yet reached the ruling stage, some analysts predict that the judge may cancel these payments. However, even if that happens, the lengthy appeals process may delay the implementation of the ruling, casting a shadow on Apple's revenue.

India: Apple's last gold mine

Apple's revenue in Greater China remained flat year-on-year, underperforming expectations, but the Indian market set a revenue record in the fourth quarter, which is very significant. Since the launch of Apple's online store in India in 2020 followed by retail stores, Apple has been emphasizing its business performance in India. India not only provides demand opportunities comparable to China for Apple but also more iPhones are now produced in India than in China.

Apple is at a crossroads

Apple's product revenue growth is slowing down and is seeking growth markets like India. While the services business is performing well, it faces multiple anti-trust threats.

However, Apple remains a behemoth and a cash flow machine. In fiscal year 2024, it returned $110 billion to shareholders, equivalent to all of its free cash flow and additional funds. As long as Apple maintains this cash flow performance, investors may still overlook its slowing growth issues.

Editor/Rocky