Apple: services margin carries the valuation

Apple's services business now contributes more than 40% of gross profit on less than a quarter of revenue. That mix shift explains why the shares have re-rated even as iPhone unit growth has stalled.

App Store commissions, advertising, iCloud and payments compound on an installed base of more than 2.3 billion active devices. Gross margin in services is above 75%. Regulatory pressure on App Store fees in the EU and the US is the principal threat.