Tech

Apple's fast-growing services could be its key to original content, analyst says

Apple crushes estimates taking Street by surprise: Pro
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Apple crushes estimates taking Street by surprise: Pro

Apple's earnings report not only handily beat estimates, but also revealed a fast-growing part of business that some see as a formidable stepping stone for the tech giant's foray into original content, analyst Will Power told CNBC on Wednesday.

The Robert W. Baird & Co. senior research analyst told "Squawk Box" that Apple's services revenue, which came in at $7.17 billion versus StreetAccount's expectations of $6.91 billion, could enable it to start producing original material, something Apple CEO Tim Cook hinted at in a Tuesday conference call with analysts.

"I think there's some tantalizing opportunities, particularly around content," Power said. "Tim Cook suggested they've dipped their toe in the water, so to speak, but it sounds to me like there could be more to come on that front."

"Perhaps that opens up a new growth avenue for them to capitalize on that big installed base of users they have out there," Power continued.

Though Apple's services, which include the App Store, Apple Music, Apple Pay, iTunes and iCloud, have all been around for some time, Power suggested they are still growing and may have more room to run.

"They're continuing to drive more subscription, recurring-based revenue streams," he said. "And I think the real big question then is, where do they go from here?"

Power also cited Apple's "aggressive assumptions" driving its forecast for services growth to double in four years.

"To the degree they can add more capabilities and functions that drive much more interaction and usage, that continues to drive the ecosystem and ... some of the services revenue opportunities," Power said.

"So over time, sure, they'll need some new product categories, but I think they've still got some room to run on what they have in the current pipeline," he added.

Apple smashes estimates while sitting on giant cash pile: Pro
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Apple smashes estimates while sitting on giant cash pile: Pro

Welch Capital Partners Analyst Daniel Ernst told "Squawk Box" that Apple's success comes in part from the uncertainty around its ability to continue building on the same products, which can provide token investing opportunities for the bullish.

"I just think that we have this platform here that's going to continue to generate a lot of money. People are always going to doubt, providing opportunity for excess return," Ernst said. "And, in the meantime, it's a great company."

Ernst said his firm's investment in Apple remains fluid for just that reason — the prospect of excess return in the face of doubt coming from Wall Street.

"The beauty of Apple is that it goes through these great periods of euphoria and these great periods of doubt," he said. "Its earnings trajectory has actually been very consistent [for] over a decade or more. But the sentiment around the stock shifts around, so we're relatively nimble in our approach to Apple."

With trade clouds looming that could turn out to be a hurdle, Ernst was confident about Apple's defenses, which include an immense cash stockpile among other resources.

"Apple can weather all kinds of storms," he said.

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