Morgan Stanley: App Store growth accelerated 25.8% y/y in August

From a note to clients by analyst Katy Huberty that landed on my desktop Friday:

App Store net revenue growth accelerated to +25.8% Y/Y in August from +18.9% in July, representing the strongest Y/Y growth since February 2018 and the third largest month-to-month acceleration in Y/Y growth since early 2015, according to data from Sensor Tower (1).

Click to enlarge.

In China, total App Store spend grew 31.8% Y/Y, a considerable acceleration from just 4.8% Y/Y growth 2 months ago, with total Gaming revenue in China growing 29.1% Y/Y in August vs. 21.0% Y/Y in July and 1.0% Y/Y in June (3). As a reminder, due to the gaming license suspension in China this time last year, comps will continue to ease into quarter-end in China, and September 2019 will be lapping a -4.1% Y/Y comp vs. a +4.9% Y/Y comp in August (China gaming, which represents 79% of China App Store spend, faces a -11.7% Y/Y comp in September vs. a -1.7% Y/Y comp in August).

Maintains Overweight rating and $247 price target.

My take: Analysts who look beyond the iPhone see a very different company than those who focus only on iPhone unit sales.

6 Comments

  1. Gregg Thurman said:

    “Analysts who look beyond the iPhone see a very different company than those who focus only on iPhone unit sales.”

    Oh, you mean analysts that have stereo vision vs monovision? Analysts that can see beyond their noses vs analysts stuck in the past?

    Bottom line is that in an environment of worldwide smartphone market saturation (and subsequent reduction in unit sales), an overvalued US$ (a de facto tax on all US products), and trade tensions with China, Apple’s gross revenue will decline a paltry ~1.89% (estimated). Yet on track for this fiscal year is Mac revenue growth (~3.5% YoY), iPad revenue growth (~10.1% YoY), Services revenue growth (~24.4% YoY) and Wearables revenue growth (~35% YoY).

    And that’s before the launch of Apple TV+, Apple News+, Apple Arcade, Fed moves to lower the value of the US$, and trade resolution.

    5
    September 6, 2019
  2. Fred Stein said:

    Hooray for Katy and the detail on Gaming growth.

    Looking beyond iPhones – heck yes. Today, Services and plus wearables, TV etc exceeds $63B. Looking out, as in 10 years, Apple could have $200B in wearables, Services, and Health/Medical. Financial Services alone could reach $10’s of B’s by then. The iPhone will join the Mac and the iPad in the legacy device category as a ”boring’ $200B+ business.

    4
    September 6, 2019
  3. Mark Visnic said:

    “My take: Analysts who look beyond the iPhone see a very different company than those who focus only on iPhone unit sales.”

    Is an “analyst” who doesn’t look beyond the iPhone an analyst?

    There are only a handful of Apple analysts. It requires more than a bulge bracket title. Katy H is one of the better ones among the true analysts.

    0
    September 6, 2019
    • Mark Visnic said:

      To be clear, some of the in-title “analysts” are in the job for objectives other than company analysis that imparts information on business performance. Those objectives include driving volatility for firms whose business model depends on market volatility and are willing to steer trades to trading desks associated with the in-title analysts that will foment volatility for them.

      1
      September 6, 2019
  4. T R said:

    Did Katy H also give her bull and bear case in addition to the $247. price target?

    0
    September 6, 2019
    • “Did Katy H also give her bull and bear case in addition to the $247. price target?”

      Not in this note. Last one I saw was July 31:

      Bull: $339
      Base: $247
      Bear: $147

      0
      September 7, 2019

Leave a Reply