Apple: Services Slowing

Apple (NASDAQ:AAPL) Services have been a touch slower the last couple of quarters. The company said it was due partly to an accounting change and FX.

As we go into the next few quarters there's risk that services can continue to slow for the above reasons but also because of more difficult year-ago comparisons.

I'll explain.

As we know growth rates depend on how well a company is doing this year. But growth rates also, of course, depend on the base number a year ago. That base number is used to calculate this year's growth rate.

When that year-ago number is higher it makes the current year's growth rate lower.

Let's see what Apple Services is up against versus last year as we go into the next couple of quarters.

Fiscal 2018 2018 2018 2018 2019 2019
Calendar 2017 2018 2018 2018 2018 2019

Dec Mar Jun Sept Dec Mar

Q1 Q2 Q3 Q4 Q1 Q2E
Services 8471 9190 9548 9981 10080 9796
Growth 18.1% 30.5% 31.4% 17.4% 19.0% 6.6%
2 Yr Gr 36.5% 48.0% 53.0% 51.8% 37.1% 37.1%

The December quarter grew 19% on top of a year ago quarter of 18% growth. That gives us a 2-year growth rate (19+18) of 37%. If we keep that same 2-year trend that implies the growth for Services will slow because March faces a "tougher" year-ago comparison of 30.5%.

Many hedge funds and analysts use year-ago comparisons to assess how strong trends are but also to predict where trends can go.

With iPhone weak of late, Services becomes an even more important part of the Apple story. I think these tougher year-ago comparisons can be important.

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