If The iPhone Declines, The App Store Can Drive Apple Stock

In a new report, Macquarie Research analyst Ben Schachter discusses Apple Inc. AAPL ’s potential growing reliance on its App Store for durable growth numbers. If recent iPhone numbers are indicative of continued growth weakness for the device, Scachter believes it will be up to Apple’s services business to pick up the slack.

Latest Numbers

In an uncharacteristic move, Apple recently disclosed its 2015 year-to-date App Store app sales numbers via press interviews. The company reportedly has achieved about $8 billion in payments through the end of July, implying $3.4 billion in net revenues.

What Does It Mean?

According to Schachter, the latest numbers from Apple illustrate strong growth in App Store numbers. Schachter estimates that the App Store will now generate more than $5 billion in operating profit for Apple this year, which would make up nearly half (45 percent) of the company’s total operating profit growth in 2015.

In addition, the July numbers indicate that the App Store is off to a strong start in the second half of the year. The reported $1.7 billion in spending on apps and in-app purchases in July represents a record-high monthly total.

Too Much Focus On Hardware

While Wall Street agonizes over iPhone numbers, Macquarie continues to focus more on Apple’s software and services business, and apps are at the center of this side of the Apple story. “Our view is that the App Store, in particular, is underappreciated as a growth driver of operating income…over the next few years and beyond,” Schachter explains.

Macquarie maintains its Outperform rating on Apple and its $140 target for the stock.