Apple stock is coming under pressure Friday on cautious comments from Morgan Stanley analyst Katy Huberty about the outlook for the company's June quarter services revenue. In particular, she's worried about a slowdown in the growth rate for the App Store.
While Huberty maintains her Overweight rating on Apple stock and $195 target price, she warns that her 15% growth forecast for June quarter App Store revenue growth could prove substantially too high.
Citing data from research firm Sensor Tower, which monitors App Store activity, Huberty reports that year-over-year net revenue growth from the store in May decelerated to 4%, from 8% in April. For the quarter to date, she estimates, App Store revenue has grown only 6%.
Huberty finds that App Store performance was weaker than expected "across the board," with deceleration in all markets other than the U.S., where 7% growth was flat with April. She notes that China, which accounted for 26% of App Store revenue on a trailing-12-months basis, decelerated to 3% growth in May, from 11% in April.
Huberty also reports that while overall downloads were up 5% in May from a year ago, revenue per download was down 1% -- Huberty contends that is the first App Store monetization decline in two years, "which is a more bearish near-term read for App Store growth."
Huberty posits that a deceleration in App Store growth "likely points to fading consumer spending" on goods and services that accelerated during the pandemic. "While we are bullish on the longer-term App Store and Services outlook, a deceleration in App Store growth (and monetization) could be a near-term headwind to results," she writes.
Note that Apple does not break out App Store or other services business in reporting financial results. In the March quarter, Apple had overall services revenue of $19.8 billion, which was up 17.3% from a year earlier. In the company's most recent conference call with investors, Chief Financial Officer Luca Maestri projected that services revenue in the June quarter would be up double digits, but at a decelerated rate from the March quarter. Current Street consensus estimates as tracked by FactSet call for June quarter services revenue of $19.6 billion, up 12.3% from a year ago.
Apple stock on Friday is off 3.86%, to $145.38.