In its quarterly earnings report on Tuesday, Apple gave investors their first glimpse into the profitability of the company’s services business, which includes products like iTunes and the App Store.
Apple said that in the first quarter of its 2019 fiscal year, the services unit had a 62.8 percent gross margin, which is the percentage of revenue left after subtracting the costs of goods sold. The company’s overall gross margin was 38 percent. In the year-ago quarter, the services gross margin was 58.3 percent, according to the numbers Apple provided with its report.
Software-based products provide an opportunity for Apple to capture meaningful profit as iPhone sales reach a saturation point. Additional products that fall under Apple’s services category include AppleCare, Apple Music, Apple Pay and iCloud.
As Apple seeks to focus more on software that works across many devices, it faces competition from big technology companies like Google and Microsoft and more niche players like Dropbox and Spotify.
Apple said that services revenue rose 19.1 percent to $10.9 billion, barely higher than the FactSet analyst estimate of $10.8 billion. Apple has said it wants to double services revenue sum for its 2016 fiscal year ($24.3 billion) by 2020.
The additional disclosure comes as Apple shifts away from reporting the number of iPhones, iPads and Macs it sells each quarter. Apple stock fell when it announced plans in November to stop disclosing device sales.
Analysts at KeyBanc Capital Markets had predicted a 59 percent services gross margin for the quarter in a note distributed to clients last week.
Apple did not provide guidance for gross margin for its services business for the fiscal second quarter.
