Goldman Sachs Says Apple Relies Too Much On This for Services Revenue

In a note on Monday, Goldman Sachs has warned that iPhone maker Apple is too reliant on Google for services revenue. The firm believes the company will need to roll out a “Prime” bundle.

According to Goldman Sachs, Google is estimated to pay Apple almost $9.5 billion in traffic acquisition costs (TAC) during calendar year 2018 and that the fees will continue to make up a big chunk of Apple’s services revenue this year too.

The firm believes that over 20 percent of Apple’s services revenue comes from Google.

“Apple will need to add mid to high single digits growth back to Services revenues through successful launch of the ‘Apple Prime’ bundle including original video that we expect to be rolled out this Spring/Summer,” said Goldman.

“Not only is TAC large but it is still growing as people search more on mobile devices,” the analysts said. “Combining our TAC work with app store data from Sensor Tower we conclude that TAC and Apple’s share of app store downloads represented 51 percent of Services revenues in 2018 and an even larger 70 percent of Services gross profits. Both of these elements should grow in 2019 albeit TAC looks likely to decelerate materially.”

The firm has given the company a $140 stock price target.

Disclaimer: We have no position in Apple Inc. (NASDAQ: AAPL) and have not been compensated for this article.