Evercore: Apple App Store growth slows to a still enviable 20%

With Apple at $134, analyst Amit Daryanani sticks with his (freshly drenched) $130 price target.

From a note to clients that landed on my desktop Tuesday:

All You Need to Know: App Store growth slowed modestly in August against a tough y/y comp. Our analysis suggests that App Store revenue grew 21% in August, below recent months where growth was around 30%. We estimate total App Store developer revenue grew to ~$4.2bn in August; up 21% Y/Y (vs. +29% in July, +31% in June).

The App Store was one of four services (also Music, Video and Cloud Services) that hit all-time records in the June-qtr and helped offset declines in Apple Care.

A key driver of the lower growth rate this month was China, where revenue was flat y/y after growing 9% in the prior month. China faced a tough comp as revenue was up 42% in the prior August period… Growth rates in both the US (+28%) and Japan remain high (+41%).

The fourth month of high growth in Japan is particularly encouraging because the country had been in the low single-digits for most of 2019 and the beginning of 2020. Despite the modest growth slowdown, the quarter-to-date growth rate still stands at +25%, above our Sept-qtr services revenue growth estimate of 16%.

Net/Net: The App Store has likely benefited from social distancing measures and economic stimulus and we expect the trend to sustain. That said, App Store is only ~35% of services and we see some headwinds in other product lines. We currently think App Store growth in the mid-20s should support our services growth estimate of ~16% in the Sept-qtr.

Maintains Outperform rating and $130 target.

My take: As the wheels of antitrust justice turn, the App Store slowly grows, generating cash with every tick of the clock.

One Comment

  1. Rodney Avilla said:
    Apple has sold about 2 billion iPhones, and is estimated to sell about 195 M this year. Since the vast majority of ‘old’ iPhones are not retired but passed on, the yearly increase in user base is incredibly significant. Future increases in services’ income, IMHO, is still not fully appreciated. AND Apple continues to sell more iPhones each quarter y/y. AND the life expectancy of each new model seems to grow each year, making the effect of each new model on the user base grow each year. That is what justifies a P/E >40. 50?

    0
    September 2, 2020

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