Apple makes about 60 billion a year in the profit. The 10 billion they get from Google constitutes 16% of their annual profit. That’s significant!
Apple trades at a 37x P/E ratio. An additional $20B profit could be worth about an additional $760 billion in market cap. You can’t dismiss 10 billion in pure profit because their market cap. Those numbers are directly related and far closer in meaning than you give credit.
You're playing funny buggers with figures there. According to your standard the sales of physical devices constitutes over 350% of their annual profit.
The $10B Google money is basically pure profit. It costs Apple nothing. Maybe a few million in lawyer time to negotiate the fee each year.
Hardware sales generates enormous revenue and also very large profit. I believe more than half of Apple’s profit is still hardware sales. But they’re working very hard to increase their services income.
If they didn't spend all that money on producing the phones they'd have nothing to sell to Google. You can't meaningfully divorce the two, all profit centres of a business rely on the cost centres.
They are saying that you can't account for the Google money as pure profit, even though the costs aren't as obvious. In particular, their argument says, you have to make and sell the phones before Google will give you money to make their search engine the default.
So the Google money is not pure profit, in the same way the phone sales are not pure profit (even though the underlying costs are not as obvious).
Scroll way back to the root of this conversation. Someone said that $20B is not nothing but is a small fraction of their revenue. I think this is a poor characterization because you need to consider the source of both gross and net revenue.
Yes, services revenue is dependent on hardware sales. And yes the margin on services is significantly higher than the margin on hardware. Apple has been working very very very hard to increase services revenue because it is so profitable. Yes that profit is dependent on their ability to continue to sell hardware. Apple’s ability to grow their annual profit is highly dependent on their ability to both maintain hardware sales and increase services revenue. There is a LOT of room to grow services revenue. There is much less room to grow hardware revenue.
I look forward to seeing where the goal post gets moved next.
I agree with this wholeheartedly.
From earlier upthread (forrestthewoods-0):
> Apple makes about 60 billion a year in the profit. The 10 billion they get from Google constitutes 16% of their annual profit. That’s significant!
This is the contentious part.
Some of the $10B from Google needs to be allocated against the cost centres that enable the sale, in order to account for it correctly. To put it another way, the marginal cost of this revenue is insignificant but the capital costs are significant.
It is worthwhile to consider marginal and capital costs separately, but it's not reasonable to ignore those upfront costs when making an argument - it comes across as "playing funny buggers with figures" (wyattpeak-1).
So I generally agree with your points, but also agree with people who say you need to factor in the non-marginal costs required to generate the Google revenue.
As a meta point, your comments on goal post moving (while potentially correct - I'm not making a comment on correctness here) don't add to your argument, your argument makes sense without them (and in my opinion would come across better if you left them out).
forrestthewoods-0: https://news.ycombinator.com/item?id=25432024
wyattpeak-1: https://news.ycombinator.com/item?id=25438323