Elazar was launched in 2004 by Chaim Siegel and has served famous hedge fund clientele who demand a keen understanding of drivers of individual companies and financial markets. Chaim twice worked for renowned trader Steve Cohen of then-SAC Capital (now Point72). He was also a partner at JLF Asset Management which was funded by George Soros. Previously he was one of seven analysts on a $13B mutual fund at Morgan Stanley Asset Management. Elazar Advisors publishes its research into the Reuters/Refinitiv Institutional Platform and Factset where Elazar's earnings estimates are factored into the Street earnings numbers.  Elazar's research is used regularly by fundamental and algorithmic traders and investors at some of the largest mutual fund and hedge fund managers in the world. Chaim has been a 5-Star top ranked analyst in Tesla and other big cap tech companies. Try us with a  free trial here . All investments have many risks and can lose principal in the short and l

Apple Services The Next Stock Driver?

Apple is a great company, no doubt. We saw analysts making a case that Services will catapult the valuation. We wanted to see for ourselves. Let's go through some simple math to see if Services is in fact the next big thing for Apple.

Let's Do The Math What Services Means To Apple

Services has been growing at about a 20-30% pace.

Here's the numbers.

8 X
Fiscal 2017 2017 2018 2018
Cal 2017 2017 2017 2018

Jun Sept Dec Mar

Q3 Q4 Q1 Q2A
Services 7266 8501 8471 9190
Growth 21.6% 34.4% 18.1% 30.5%
2 Yr Gr 40.4% 58.8% 36.5% 48.0%
Est EBIT 3633 4250 4235 4595

Growth accelerated in the most recent quarter to 30.5%. We like to use the two-year run-rate which adds this year and last year's growth.

If we say the underlying two-year trend is 45%, or 22.5% each year then here's what we'd get on an annual basis for services.

Fisc 2019 2020
Cal 2018 2019

Dec Dec
Tax Adj
per share

We're assuming the EBIT margins for Services is 50%.  If so you get an extra $.65 in earnings this calendar year and an extra $.89 for calendar 2019.

Using a 15 multiple that would give you an extra $10 in stock value this year and another $13+ value next year. Total it adds over 10% to the valuation through 2019.

That would tell you that Services profits should be a meaningful driver to the overall company.

But It Hasn't Shown Through Yet

This deserves more work but the issue we have is that Services has already been growing ahead of the business but the higher margin hasn't shown through to the corporate margins.

Look at Apple's trends for corporate margins.

Jun Sept Dec Mar

Q3 Q4 Q1 Q2A
Fiscal 2017 2017 2018 2018
Cal 2017 2017 2017 2018
EBIT 10768 13120 26274 15894
Margin 23.7% 24.9% 29.7% 26.0%
bp chg -.14% -.16% -.06% -.67%

They've been consistently down.

Even with Services having much higher margins than the overall business and growing faster we haven't seen Apple's overall margins start to move up on a year-over-year basis. That tells you the rest of the business is dragging margins much lower offsetting the Services benefit.

So will Services start to be accretive to the overall valuation? That depends. Will the rest of the business continue to offset the Services margin benefit or will Services shine through?

We plan to speak to the company in June and will try to get further understanding of what it will take to have Services shine through to the bottom line.


All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless. Model portfolio trades and positions are hypothetical to be used for directional analysis and ratings purposes. Elazar and its employees do not take individual stock positions to avoid front running and other potential customer related issues.

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