Evercore: Apple’s Chinese App Store returns to double digit growth

From a note to clients by analyst Amit Daryanani that landed on my desktop Tuesday:

ALL YOU NEED TO KNOW: We think there is likely upside ahead when it comes to services revenues in the June-qtr driven by a sizable acceleration in China centric markets. We estimate total App Store developer revenue grew to ~$9bn in FQ3:19, up 18% Y/Y (vs. 17% in FQ2). Developer revenue from China grew 15% Y/Y (vs. 5% in FQ2 and 2% in FQ1), a notable acceleration after three quarters of low single digit growth.

The return to growth was likely partially driven by lapping last year’s gaming approval headwinds. Gaming share of App Store revenue fell to 68% in FQ3:19, down from 70% in the prior quarter. Gaming accounted for 69.2% of revenue in the first three quarters of FY19 vs 73% in FY18 as other categories, including photo & video (+70% Y/Y), continue to grow rapidly. Net/Net: The reacceleration of growth in China is encouraging while most other growth trends held stable…

Growth by Category: Revenue growth from the gaming (+13%), entertainment (+12%) and social networking (+14%) categories came in slightly below the overall growth rate (+18%), while photo & video (+90%) and music (+30%) categories grew at a higher rate than the overall App Store.

China Lapping Gaming Approval Headwinds: Developer revenue from China grew 15% in FQ3:19, well above the 4% rate from the first half of the year. Gaming revenue was a key growth driver as the prior year was negatively impacted by China pausing all regulatory approval for new games. This trend will likely continue next quarter and into FY20.

Maintains Outperform rating and $215 price target.

My take: The 90% growth in photo and video apps is a surprise. The easy year-over-year compare due to the change in Chinese app approval procedures should not be.

Cue the charts:

Evercore china app store

Click to enlarge.


  1. Dan Scropos said:

    For all of the heat he takes, Tim Cook has virtually every category introduced under his leadership growing well. While we see iPhone and iPad markets maturing, Services, Wearables and even Apple Pay seem to be gaining steam. I’d this guy truly knows what he’s doing. I have zero complaints with his vision.

    July 9, 2019
  2. Gregg Thurman said:

    Sure makes Zhang look like the village idiot.

    July 9, 2019
  3. Fred Stein said:

    Hooray and thanks. Real news and real data that matter. While the actual dollar increase is small, it’s the strongest leading indicator.

    In China, iOS competes with WeChat to be the source of SmartPhone Apps and Services. Thus App Store growth and reaching an all time high validates Apple’s long term growth potential.

    July 9, 2019
    • Gregg Thurman said:

      “In China, iOS competes with WeChat to be the source of SmartPhone Apps and Services”

      WeChat is a Cloud-based app that is a social media app, email client, texting app, mobile pay app and much more. It is OS agnostic. It doesn’t matter if your mobile device is running iOS, Android or something else.

      Because of that, Apple’s App Store revenue growing at double-digit speed is all the more impressive.

      July 9, 2019

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