For the third time this fiscal year Apple has set a record for its growing services business. But the most valuable company on Wall Street has another three-quarter streak going: shrinking revenue.

After the closing bell on Thursday, Apple reported fiscal third quarter revenue that fell 1.4% from the same period last year. The unsavory note seemed to eclipse the stellar performance of its services segment that includes iCloud, Music, and Apple TV+. Investors appeared to take the bad news more seriously than the good. Shares dropped nearly 5% on Friday to close at $181.99.

Services was among the key metrics that surpassed analysts’ expectations, coming in at more than $21 billion, up 8% from the year-ago period. Apple also beat expectations for overall revenue and earnings per share. The company touted its installed base of 2 billion active devices. But even those bright spots weren’t enough to satisfy the Street.

Revenue has slid for multiple quarters as Mac and iPad sales have flagged. On a call with analysts, Apple CFO Luca Maestri said the company expects revenue for these products to fall by double digits from last year, citing pent-up demand from the prior-year quarter after factory shutdowns.

In a note after earnings, analysts from Jefferies cautioned that Apple’s revenue guidance and product commentary suggested that growth of the iPhone is lower than Wall Street anticipated.

Sales for the flagship iPhone, which account for roughly half the company’s total revenue, came in slightly below expectations and 2% behind the year-ago period’s figures at $39.67 billion.

Some analysts brushed aside the instant market reaction and highlighted the company’s strengths. When compared to Android’s marked decline in sales, for instance, the relatively flat sales of iPhones look healthy, Oppenheimer analyst Martin Yang told Yahoo Finance Live. “The services story is going to be the long-term growth driver for Apple,” he said.

Wedbush analyst Dan Ives also emphasized the bright side. “The star of the show was Services revenue,” he said in a note on Friday. He added that services is set to accelerate to double-digit growth and “remains key to Apple's overall re-rating and growth story.”

CEO Tim Cook emphasized the services record set in the latest quarter “driven by over 1 billion paid subscriptions.” And while he highlighted the strength of the iPhone in emerging markets, including in India, he noted the obstacles facing Apple squarely in the face: "It's a challenging smartphone market in the US currently," he said.

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.

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