Tim Cook’s Babe Ruth Moment: Benchmarking the “Fortune 100” $AAPL Services Business- Over a Year in Advance

From 4:25 (very early on!) in Apple’s FQ3 2016 earnings conference call Tim Cook says during his prepared remarks: “we expect [Services revenue] to be the size of a Fortune 100 company next year”.

I’ve seen maybe one mention of what that really means on Twitter after I looked it up, so, I figure I’m still being net-helpful by, well, actually checking out the Fortune 500 and seeing what’s in that #100 vicinity (apparently based on FY 2015 data).

So, thank you very much, Time Inc. Given Tim’s strong wording, we can probably put “next year Services revenue” at around $28B.

What that means in terms of growth depends on how Tim defines “next year”. Usually, he means fiscal. But, having not been specific, he could also mean calendar.

If we go by fiscal year, well, 3/4 of the math is already in — just about $18B in Services revenue booked so far. FQ4 2015 Services revenue of $5.086B was very similar to FQ3 2015’s number. Assume a similar YOY growth rate as FQ3 2016 and you get another $6B, give or take a few hundred million, bringing FY 2016’s Services total to just about $24B.

If you assume Tim meant calendar year, you end up with FQ2 2016 thru FQ1 2017 numbers, more or less. FQ2 through FQ4 will likely be $18B, leaving us to solve for FQ1. Well, since FQ1 2016’s number was just about $6B for Services, and Tim’s obviously pointing to growth, just go from there. Maybe Apple adds more like a half billion of that total YOY, or maybe it’s $1B- and since $28B in a year means $7B per quarter, well, there you have it.

Why did we go through this mini-exercise if the “end result” is already fairly quantifiable? Well, I still find it useful, because there’s a little ambiguity in the measuring point, which affects the ultimate growth rate of the category. If we use a FY basis, it’s something close to 17%. If we go with calendar-year (meaning the year-ago compare is more like $25B), the Services growth rate could be closer to 12%.

Whatever the case, we have at least one growth rate projection based on what amounts to a $28B projection for Services by management for 2017.

…and that’s pretty much unprecedented for Apple.

Why?

Remember that baseball player Babe Ruth? Hall of Famer? He’s well-known for “the called shot”…which apparently wasn’t really a guarantee from him that he’d hit a home run in a given direction, but because one media report said so, heck, he “ran with it” straight into the annals of fabricated sports history (the called shot, not the home run).

Well, Tim Cook, in a single comment, just did what I can’t remember Apple ever doing — give highly specific (for Apple) guidance

for its single shining light (heh, consistent growth business 😏) this year

for the following year.

Of course, he could be wrong. But he gains nothing from being significantly off the mark on his comment.

Really, he didn’t have to make that comment at all the way he did. “We believe Services has broad-based momentum that will lead to continued growth” would’ve done just fine as a bullish signal. “We all know” (those of us following Apple financials, anyway), that “sheer inertia” of Apple’s growing installed base, on its own, would probably help Apple continue growing Services revenue year on year for at least a few quarters more.

Yet, Tim took a moment to point towards center field or something, and say the three words, “Fortune 100 Company”. No, Services isn’t even a third of Apple’s business, not even a fifth. But it IS in excess of $20B, and Fortune 100 companies are…fairly big. Apple served notice about Services performance expectations to the entire world.

Sure, the company doesn’t officially give guidance beyond “the next fiscal quarter”.

But when deemed appropriate, it apparently has no issues whatsoever “bending the rules” on that policy.

Given the extent of this bend, possibly not having been seen in at least 20 years, I think it’s very much worth keeping an eye on this new “storyline”. Because unlike the Sultan of Swat’s tall tale, this called shot is the real deal.

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