Although Apple will now provide investors and analysts cost-of-sales data for its product businesses and its services business, they will not be in a position to know the margin mix within Apple’s services businesses.
With Apple Inc saying it will no more disclose a performance metric that investors, which it has done for the last twenty years, analysts and investors are left with very little to calculate the average selling price of Apple’s gadgets and gauge its health.
On Thursday, Apple stated, it will stop reporting unit sales for its iPad, iPhone, and Mac computer products.
Apple said, the data is less relevant now to gauge the strength of its business as customers bundle products, such as an iPhone paired with its wireless AirPods headphones, along with paid subscription services like Apple Music to listen to songs and iCloud storage for photos.
The move has left analysts skeptical.
“Companies typically stop reporting metrics when the metrics are about to turn. This is not a good look for Apple,” said Walter Piecyk, analyst from BTIG Research.
Apple’s move has cost it dearly with investors sending its shares down by 7% in after-hours trading. Apple’s shares later settled at $207.81, down by 6.5% below their previous closing.
“Apple is a complex company with lot of moving parts,” said Ivan Fienseth, an analyst from Tigress. “I think they need to give more transparency to their shareholders and not less.”
Apple will now provide cost-of-sales data for both its total product businesses and its total services business, thus allowing investors to evaluate gross margins for both businesses. Earlier, Apple used to provide only an overall gross margin for the company.
The new numbers are important for two reasons. First, they will show just how lucrative Apple’s hardware business really is. But more importantly, for the first time they give margin information on Apple’s services business, which reached $10 billion in its fiscal fourth quarter, up 17%.
Many of Apple’s fastest-growing businesses are subscription based, like its $9.99 a month Apple Music service. Analysts and investors value a subscription business through a combination of their revenue growth rate and margins, information that investors will now have, said Tien Tzuo, Zuora Inc’s CEO. Zuora helps subscription businesses track their finances.
However, Apple’s investors will not know the margin mix within Apple’s services businesses. While Apple’s iCloud storage business is lucrative, others like Apple Music is not so since Apple has to pay music licenses costs and has to compete with rivals, including Spotify Technology SA.
“You would value the music business with one (revenue) multiple closer to Spotify, and the cloud business with a (subscription software) multiple,” said Tzuo. “Having some sense of which business is growing faster would be nice.”