Bank Of America's Bullish Apple Stance Unchanged Despite App Store Deceleration

Third-party data from app intelligence firm Sensor Tower and Bank of America Merrill Lynch point to a deceleration in Apple Inc. AAPL's App store revenue in October, the sell-side firm said this week. 

The Analyst

Bank of America Merrill Lynch's Wamsi Mohan maintains a Buy rating on Apple's stock with an unchanged $235 price target.

The Thesis

Apple's revenue from the App Store posted 11-percent year-over-year growth in October, which marks a deceleration from 20 percent year-over-year growth in September, 24 percent in August and 26 percent in July, Mohan said in a research report. (See the analyst's track record here.) 

The extent of the slowdown is notable given the growing installed base of Apple users, Mohan said. A slowdown in App Store revenue has the potential to erase "roughly a few points" of Apple's overall services growth, although overall this could be offset by growth in business units like licensing and Apple Care, he said. 

App Store trends in China also decelerated, with flat year-over-year revenue from a year ago in October following 10-percent year-over-year in September, 16 percent in August and 24 percent in July, the analyst said.

The decline in China is less of a surprise, although still significant, Mohan said. Yet a large number of iOS users in China are non-paying, which implies the potential for future growth, he said. 

The slowdown in App Store trends comes at a time of difficult year-over-year comparisons for Apple, with consensus estimates for the December-ending fiscal quarter assuming what appears to be a "somewhat aggressive" 25-percent growth rate, according to BofA. 

Price Action

Apple shares were trading up 0.12 percent at $219.13 at the time of publication Thursday. 

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Photo courtesy of Apple.