Morgan Stanley Talks Apple App Store Trends

Data from Sensor Tower shows that Apple Inc. AAPL's App Store collected $3.7 billion in net revenue throughout the March-ending quarter, which is slightly lower than what Morgan Stanley was modeling.

The Analyst

Morgan Stanley's Katy Huberty maintains an Overweight rating on Apple with an unchanged $220 price target.

The Thesis

Apple's reported $3.7 billion in App store revenue implies a 15-percent year-over-year improvement, but also marks a one-point deceleration from 16-percent growth in the December-ending quarter, Huberty said in a research report. The analyst had forecasted App Store revenue to grow by 17 percent in the March-ending quarter.

Apple's total Services revenue for the March-ending quarter is estimated to be $11.5 billion, which is slightly short Morgan Stanley's prior estimate of $11.6 billion.

Despite a slight miss versus expectations, Huberty says Apple should show an acceleration in Services growth in the back half of fiscal 2019 which should be sustained throughout 2020. Apple should see gains from consumers in China along with new Service launches, which typically add one point to Services growth in the year of launch and three points in the first full year after the launch.

By comparison, Huberty says the Street is estimating Apple will show a six-point deceleration in Services growth in fiscal 2019 followed by a slight acceleration in the following year.

Price Action

Apple traded around $195.58 per share Thursday afternoon.

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