Hello everyone.

We will conclude our Apple earnings review by looking at Apple’s paid subscriptions growth and gross margins. There are a few follow-ups that we have not covered yet. The discussion includes Neil’s thoughts on why Apple’s gross margins still have room to move higher.

Let’s jump right in.

Apple’s Paid Subscriptions Growth Reaccelerates

In keeping with its usual disclosure, Apple provided updated comments regarding the number of paid subscriptions across the Apple ecosystem.

Based on Apple’s commentary, here are my estimates for the number of paid subscriptions across Apple’s ecosystem (first party and third party) on a quarterly basis:

1Q20: 482M paid subscriptions
2Q20: 518M
3Q20: 553M
4Q20: 588M
1Q21: 623M
2Q21: 663M
3Q21: 705M
4Q21: 749M

An Above Avalon membership is required to continue reading this update. Members can read the full update here . An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.

(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)

Above Avalon Membership

Subscribe $20/month

Subscribe $200/year

Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.

More information about Above Avalon membership, including the full list of benefits and privileges, is available here.

Hello everyone.

Happy Tuesday.

Reports. A new Above Avalon Report will be published on Thursday – December 22nd. Keep an eye out for it in your email inbox. Those with the podcast add-on will see the new episode appear in your podcast players shortly thereafter.

Above Avalon Gifts - DEADLINE. The final day to gift an Above Avalon subscription is Saturday (December 24th). The gifting page will be taken down on December 24th at 10 pm EST. While all gifted subscriptions will officially begin on January 4th, 2023, your gift recipient will be able to use their subscription as soon as they are informed of the gift. This means gift recipients will have access to the member archive, and the daily podcast / Inside Orchard if that is their purchased gift, over the holiday break.

Thank you to those of you who have already purchased gift memberships this holiday season. Gifting volume has already exceeded last year’s volume. A big thank you to those members who purchased gifts. More information on Above Avalon Gifts (and payment forms) is available here.

Let’s jump into today’s update.

Apple Year in Review 2022 (Financial Strategy)

For Apple, one way of recapping the past 12 months is to look at the company from two perspectives: products and financials. In yesterday’s update, we looked at Apple's product strategy. Today, we will look at Apple's financials.

(For today’s discussion, we will look at FY numbers, which reflect September 2021 to September 2022 trends. If there are significant differences between FY22 and CY22 results, additional mention will be made.)

Due to the pandemic and the resulting impact on shipping logistics, supply chains, and component availability, it’s been a few years since we had a clean look at Apple’s growth fundamentals. Strong revenue growth in 2021 (33%) as a result of an easy year-over-year contributed to slowing revenue growth across the board in 2022 (8%). Backing out FX impact, Apple would have seen double-digit revenue growth.