Apple's App Store Revenue Surge and iPhone Upgrades Set to Drive Growth in 2025: BofA Analyst

Piper Sandler analyst Harsh Kumar maintained Apple Inc AAPL with a Neutral and raised the price target from $190 to $225.

BofA Securities analyst Wamsi Mohan reiterated a Buy rating on Apple with a price target of $230.

The rating reflected the expected strong iPhone upgrade cycle in fiscal 2025 driven by the need for the latest hardware to enable generative artificial intelligence features, higher growth in Services revenue, higher margins from more internally developed silicon, continuing capital returns, and AI features that can drive higher institutional ownership.

The price target reflects 30x Mohan’s calendar 2025 EPS estimate. The target multiple compares to the 5-year historical range of 16-34x (median 27x). Mohan noted that a multiple at the higher end of the historical range is justified given a multi-year upgrade cycle, large cash balance, the opportunity to diversify into new end markets, and increasing mix and diversity of services.

According to SensorTower data, App Store revenues in the third quarter of fiscal 2024 increased to $7.5 billion (+13% year-on-year, according to developer revenues from SensorTower), with total downloads (iPhone + iPad) +3.2 Y/Y (8.4 billion) during the same period. In the third quarter, Mohan noted app store dollars per download increased by +9.5% Y/Y.

In the third quarter, App Store gaming revenue increased +7% Y/Y to $3.9 billion, accounting for only 51% of total App Store revenue vs. 54% a year ago. In the third quarter, the Chinese gaming segment revenue was flat Y/Y, while the entertainment segment increased +17% Y/Y. In the third quarter, the Entertainment segment increased its share of App store revenue in China by 2 points to 20%.

Mohan modeled services revenue growth of +14% Y/Y for total services revenue in the third quarter and +15% Y/Y in the fourth quarter. The analyst noted resiliency in Services as a long-term bullish indicator.

Price Action: AAPL shares traded higher by 0.12% at $228.10 at the last check Tuesday.

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