Stable earnings – These cloud providers make portfolios robust: Apple, Spotify, MiMedia Holdings

For Apple, hardware will soon be just an accessory

Many people still think of Apple as a hardware provider. And it is true that the Company's business still depends a lot on selling iPhones and other devices. But its "Services" division is growing. Apple's Services include its cloud and digital services, such as the iCloud online storage service, the App Store, Apple Music, Apple TV+, the Apple Arcade gaming platform, and Apple Pay. Apple's services business is a classic ecosystem model: Apple not only earns a one-time profit from device sales, but also generates ongoing revenue by providing subscriptions and digital goods to its growing base of active Apple devices. The services are closely integrated with the hardware, which ensures strong customer loyalty. The profitability of this model is remarkable: The gross margin in the services segment was around 74% in fiscal year 2024, significantly higher than the approximately 37% margin in the product business. Cloud services are therefore a real margin booster for Apple. Today, the services division generates around USD 100 billion in revenue, corresponding to around a quarter of total revenue – and the trend is rising sharply.

For Apple boss Tim Cook, services are an essential pillar for the future. New services, such as those related to fitness and other personal data, make it increasingly difficult for Apple customers to switch – who wants to spend hours migrating data collected over years and possibly risk losing data?

Customer loyalty is somewhat lower for pure streaming services such as Spotify, but even here, customers quickly miss old playlists or podcast subscriptions. Spotify is now also focusing on producing its own content to set itself apart from the competition. This, combined with an algorithm that many users perceive as innovative, which plays users exactly the music they want to hear, ensures that Spotify continues to grow. Although there is a free introductory subscription, many subscribers switch to a paid plan – at the end of 2024, this conversion rate was 39% according to the Company's figures. This development is considered the basis for Spotify's current profitability.

One company that has a lot in common with Apple and Spotify is MiMedia Holdings. MiMedia offers a personal cloud platform for end users, specializing in the secure storage, organization, and cross-platform availability of personal media such as photos, videos, music, and documents. However, one difference between MiMedia and Apple or Spotify is its target audience – MiMedia does not rely on a B2C model, but rather a B2B2C model. Instead of engaging in expensive direct customer acquisition, MiMedia licenses its white-label cloud solution to smartphone manufacturers and telecommunications providers, who pre-install the MiMedia app as a preconfigured standard gallery on millions of new devices. A milestone for MiMedia this year was its cooperation with Walmart in Latin America: MiMedia is integrating Walmart's mobile phone brand "Bait" (approx. 18 million users) as a core component of its digital ecosystem. Every buyer of a Bait smartphone receives MiMedia either pre-installed or via an update. MiMedia believes that the cooperation with Walmart in Latin America offers potential for additional cross-selling, enabling the Company to reach 50 million customers annually. The Company is currently exploring further partnerships in Mexico, Southeast Asia, Africa, and Latin America in order to continue its growth.

With this strategy, MiMedia is following in the footsteps of major companies in industry like Spotify: Spotify emphasizes that 70% of new streaming customers will come from emerging markets by 2030 and is currently recording the highest growth rates there. Apple also has its sights set on this market and has opened its own stores in India, accompanying this move with a comprehensive marketing campaign. While Apple can afford to spend heavily to win over customers, MiMedia scores with its popular cloud platform, which even complies with German GDPR standards, and is entering into partnerships with key multipliers in retail and mobile communications.

All three companies operate in a huge growth market: According to analysts at Data Bridge, cloud services for end consumers are expected to grow by 25% annually through 2030. Juniper Research estimates that digital subscriptions will already have a market volume of USD 1 trillion by 2028. This situation has boosted Spotify and MiMedia shares over the past six months: Spotify's share price rose by 21%, while the smaller company MiMedia climbed by around 100% on the stock market. Only Apple lost 13% over the same period. Investors should keep an eye on all three companies – while Apple is no longer an insider tip, Spotify's profitability gives cause for hope. MiMedia shares also look promising – the B2B2C model is promising and the focus on emerging markets promises future and, above all, stable earnings. With such a customer base, the Company, which is currently valued at just under CAD 27 million, could become a takeover candidate.