Investors are worried about new Apple services potential in censorship-heavy China.
Apple has spent much of 2019 pushing its services business and has launched three new services; Apple News+, Apple TV+, and Apple Arcade are all subscriptions that people can pay for, adding to Apple’s services bottom line. Except in one of its most important markets: China.
According to a new report from Bloomberg‘s Mark Gurman, Chinese citizens have been unable to enjoy any of these new services due to the country’s strict censorship policies.
“There’s a headwind around services there, and it’s unclear what services can be available,” said Gene Munster, a veteran Apple analyst and co-founder of Loup Ventures. “It points to an issue with China more broadly with how U.S. companies can operate there, and it will likely remain a headwind on Apple services for a long time.”
While standard iPhone services like iMessage work in China, many paid offerings that help Apple generate recurring revenue from its devices aren’t available in the country including the aforementioned services Apple TV+ video streaming, Apple Arcade, and News+. Other Apple services that can’t be accessed in the country include the iTunes Store, iTunes Movie rentals, Apple Books, Apple TV, and Apple News.
“This is a concern for investors because Apple is relying on services to power future revenue and profit,” writes Gurman. “If the company can’t sell these offerings in the world’s large internet market, it will be harder to keep growing. About 10% of Apple’s services revenue comes from China, while the country accounts for roughly 18% of iPhone sales, according to Dan Ives, an analyst at Wedbush Securities. ‘The missing puzzle piece for services is China,’ he added.”
If Apple can find a way to work around China’s issues, or work with the country in order to appease it, the potential for income is huge. But as with all things in China, that isn’t going to be an easy feat at all.