Evercore: Apple App Store growth faces tough comps

By this time last year many of us had hunkered down in earnest.

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

All You Need to Know: App Store growth slowed in April as it begins to come up against some tough comps after 6 straight quarters of 30%+ growth. We estimate total App Store developer revenue grew to ~$4.8bn in April; up 18% Y/Y (vs. +31% in March, +31% in February).

The deceleration was primarily driven by a slowdown in gaming revenue as we lap the benefits from last year’s COVID shutdowns. Street models are calling for Services revenue growth to decelerate to 23% y/y in the June-qtr, down from 27% in the Mar-qtr. This deceleration looks appropriate as App Store revenue will likely be high teens to low 20s growth.

The App Store is facing difficult comps after reporting +33% growth in June-20. Apple care is another component of the Services business that will likely slow down as it tends to be relatively correlated to iPhone sales. From a geographic perspective, Japan (+9%) and Taiwan (+10%) saw the largest deceleration, falling from growth rates of 29% and 20%, respectively. Growth in the US and China outperformed the broader store with revenue +25%.

Net/Net: Services growth looks set to decelerate as we come up against some difficult comps. Longer-term, we remain confident in our call for high-teens annual services growth.

Maintain Outperform rating and $175 target.

My take: Comps — damned if you do and damned if you don’t.

10 Comments

  1. Michael Goldfeder said:
    It’s always Armageddon for Apple with these know nothing geniuses.

    2
    May 3, 2021
  2. Gregg Thurman said:
    Determining failure by declining growth rates is a fools game.

    Using Amit’s growth rate numbers: if we assume last year’s revenue was $100 after 33% growth from prior year $75, then this year’s revenue assuming 23% growth will be $123.

    The interesting part of the above example is that last year revenue grew $25 YoY (33%), with this year’s growth pegged at $23 YoY (23%). The growth rate deceleration amounts to a mere $2 of unrealized growth.

    I don’t see a problem. Revenue growth remains very solid in absolute terms. The decline isn’t large enough to be material, especially when you consider this is an estimate Apple has handily beat in the last completed quarters.

    2
    May 3, 2021
  3. Gregg Thurman said:
    Should have read: “Apple has handily beat in the last two completed quarters.”

    4
    May 3, 2021
    • Alan Birnbaum said:
      And has little to show for it ( stock appreciation only).

      0
      May 3, 2021
  4. Horace Dediu said:
    Nothing says kill the goose than a *bigger* golden egg.

    0
    May 4, 2021
    • Mark Visnic said:
      Humans. We can’t get out of our own way.

      0
      May 4, 2021
  5. Bart Yee said:
    Applying the “model of small growth companies” to super large companies is a fools errand. When you have a company like Apple that made quarterly gross revenue of $89.6B and $111.4B in its first two quarters, even a mid 5% or high single digit 9% growth is $4.5B-8.1B (total $94-97.7B) and $5.6-10.0B (total an astounding $117-$121.4B) additional respectively.

    0
    May 4, 2021
    • Bart Yee said:
      I never understand why when a company may have had a trifecta of positive tailwinds, that quarter isn’t treated as a positive outlier and if a bit of contraction occurs the following year but was still higher than two years ago YOY, the overall trend of growth is still positive but regressed to the mean???

      It’s not hard to draw a trend line and see revenue and EPS grinding higher or sometimes in uneven spurts despite a more or less positive outlier. Slope changes can be seasonal as well.

      0
      May 4, 2021

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