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At 40 Million Subscribers, Apple Music's Momentum Continues

Daniel Sparks, The Motley Fool

Apple's (NASDAQ: AAPL) somewhat random updates on its Apple Music subscriber count continued this week. The tech giant said on Wednesday that subscribers for its service passed 40 million, according to Variety. The key milestone is more than half of what Spotify (NYSE: SPOT) estimated -- 73 million to 76 million paid subscribers -- it would have by the end of its first quarter, which closed at the end of March. 

The company's persistently strong growth recently bodes well for its efforts to boost its services business with its streaming music service, and it highlights Spotify's growing competition.

Apple Music on Mac and iPhone

Apple Music. Image source: Apple.

Apple Music's rapid growth

Not only has Apple Music grown quickly, but it has done so at an accelerating pace. As of its update on Wednesday, the tech company had added 2 million subscribers during the last 30 days. This beats the five weeks it took to grow from 36 million to 38 million subscribers. 

Apple also gave a rare update this Wednesday on the total number when including its subscribers currently on a free three-month trial. With these subscribers, Apple has 48 million. Since Spotify includes users on free trials with credit cards attached to their accounts when reporting its premium subscribers, the 48 million subscriber number is a better comparison to Spotify's premium subscribers. Spotify's 73 million to 76 million premium subscriber number, therefore, isn't too far ahead of Apple's count.

Spotify's growth is somewhat underwhelming when investors consider how Apple Music appears to be growing faster. Though it's not a perfect comparison, Spotify's addition of 2 million to 5 million subscribers during its first quarter puts its growth behind the 2 million subscribers Apple added in the last month. Furthermore, the 71 million premium subscribers with which Spotify ended 2017 were up 46% compared to 2016. But Apple Music's paid subscribers have increased 48% since last June -- just 10 months ago. 

An important catalyst

Apple Music's strong growth is good news for investors, as it demonstrates how the tech company can launch and cultivate more successful services, capitalizing on its growing base of active devices.

In Apple's first quarter of fiscal 2018, services revenue was $8.5 billion, up from $7.2 billion in the year-ago quarter despite the fact that the first quarter of fiscal 2017 had an extra week. Services revenue during the period accounted for 9.6% of total revenue, up from 9.2% in the year-ago quarter. 

Thanks to continued growth in App Store revenue and the addition of new services like Apple Pay and Apple Music in recent years, services is now Apple's second-largest segment after iPhone. Services revenue of $8.5 billion in Q1 was $1.6 billion higher than revenue in its third-largest segment: Mac.

A line chart showing Apple's tailing-12-month services revenue growth

Fiscal quarters shown. Data source: Apple SEC filings. Chart by author.

Its notable execution with Apple Music since the service was launched less than three years ago bodes well for other services Apple might launch in the future. Also, it should help it easily hit its target of $50 billion in annual service revenue by 2020 -- up from $31 billion in the trailing 12 months.

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Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.