RBC analyst Amit Daryanani is bullish on Apple Inc. (NASDAQ:AAPL). The analyst has raised his price target on AAPL by 10%, citing the growth of the company’s service business.
Apple Service – which includes Apple Store, iTunes, iCloud, and Apple Care – has emerged as the second largest source of revenue for the iPhone maker.
In a note to clients, Daryanani said that the Service segment could be a $50 billion business by 2020, according to a report from Barrons.
The main benefit of services is that the iPhone maker converts sales into profit at a rate higher than the company’s average, the report said.
Daryanani raised his price target on Apple stock to $155 from $140. Shares are currently trading at around $140.46. The stock is up more than 21% for the year.
For the fiscal first quarter ended December 31, 2016, Apple reported an 18% increase in its services revenue to $7.2 billion from $6.1 billion a year ago.
The tech giant is betting big on its higher-margin software products as growth in smartphones slows, CNBC reported early this year.
iPhones sales represent more than 60% of the Apple’s total revenues. However, the company saw a decline in iPhone sales last year.
For the first quarter, the company posted a revenue of $78.4 billion, up from $75.9 billion in the year-ago quarter. The company’s international sales accounted for 64% of the total revenue.
Services accounted for 9.2% of the company’s total revenue in the first quarter.
“We’re thrilled to report that our holiday quarter results generated Apple’s highest quarterly revenue ever, and broke multiple records along the way. We sold more iPhones than ever before and set all-time revenue records for iPhone, Services, Mac and Apple Watch,” CEO Tim Cook said in a statement.
“Revenue from Services grew strongly over last year, led by record customer activity on the App Store, and we are very excited about the products in our pipeline,” Cook added.