Evercore: Apple’s App Store growth slowing

But subscriptions and new services should pick up the slack, says analyst Amit Daryanani.

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

The Services business is gradually becoming less dependent on the App Store as demonstrated by the high overall growth in the June-qtr, despite App Store growth of just 18%. Apple indicated on its June-qtr call that it now has 700M paid subscriptions (up 150M over the LTM) across all services and we expect growth in subs and new service offerings to continue to be the main drivers of growth going forward. App Store comps get increasingly challenging through the balance of 2021 and we expect App Store growth to remain below our forecasted Services growth for at least the next two quarters. From a geographic perspective, Japan was the worst performing major market at -2% against a very challenging comp, while China (+32%) outperformed the broader market.

Net/Net: App Store growth will likely remain around 15-20% over the next six months, but we expect other Services to pick up the slack and keep the segment growth rate at 20%+.

Maintains Outperform rating and $180 target.

My take: As Apple has become less dependent on iPhone sales, Services has picked up the slack. Now Services revenue is becoming less dependent on App Store sales. That’s one of Apple’s new superpowers: Always having something else to pick up the slack. 

10 Comments

  1. Romeo A Esparrago Jr said:
    As they say … slowing growth? Doomed!
    ::: shrug ::: LOL
    There were times when Usain slowed his pace but still won the race.

    5
    August 3, 2021
    • Gregg Thurman said:
      Yeah, slowing to Warp 9.

      3
      August 3, 2021
  2. Fred Stein said:
    Apple’s paid subscribers grow 27% YoY to 700M. With upsell and new services, expect long term growth to sustain high PE.

    And, this high margin revenue stream supports buybacks….forever.

    And, health services can drive further growth.

    2
    August 3, 2021
  3. Jerry Doyle said:
    I welcome Apple no longer breaking out services revenue by categories because soon WS will be ferreting out every little parcel and morsel of information to cry doomsday in declining App Store revenue related to its ongoing legal battles over the store. I like his $180 PT.

    2
    August 3, 2021
  4. Jerry Doyle said:
    CNBC has Amit Daryanani on periodically for Apple comment. I find his perspective on Apple interesting. You may want to consider extending an invite to the good man for one of your Zoom Q&As.

    2
    August 3, 2021
  5. Wearables that assist us with essential human life needs. Maybe even call a doctor before we have a stroke. Let us hear the grandkids & afford the plane tx there. See my agenda or Apple share price at the turn of a wrist. The lion’s share of new wearables are sold to people new to the product.

    4
    August 3, 2021
  6. Steven Philips said:
    Apple TV subscriptions are too much like cable. A bunch of stuff I don’t need at a price higher than what I’d pay individually for what I use. IF they’d offer a make your own subscription of 3 or more services at a 15%+ discount then I’d be encouraged to add a couple.

    0
    August 3, 2021
    • Bart Yee said:
      Its an interesting shift from cable cord cutting to the massive proliferation of various streaming services. I think 10 years ago while Jobs was still alive He truly believed Apple could become a content streaming company and enhance Apple TV (I solved the TV issue!) as a single stop streaming content provider. But that required the cooperation of all of the major TV and film studios and production houses and at that time they were (are) still wedded to the old Hollywood makes it, Cable/Satellite and Broadcast TV pays for it, plus many many incestuous arrangements between (mostly male) Hollywood and Cable moguls who wanted (still do) to preserve their financial, money, and power arrangements that they thrived on (see Comcast, SBC/ATT, Liberty Media, etc. etc.) in the past. NONE of these companies on either end would cooperate with Apple in creating a streaming service like Apple Music became because they felt they would get brought down in price just to help Apple – so they persisted with old distribution methods, complicated, menu driven set top boxes, and proprietary direct pipes into people’s homes. Job’s vision (at least 5 years ahead of its time) never came to pass during his lifetime – a streaming hardware/software solution that would elegantly eliminate the old cumbersome tech engineer driven VCR/CD/set top box and TV user interfaces with hundred button remotes and a 1980’s user interface that hadn’t really improved ever. The Apple TV that did emerge was crippled from a content perspective for a long time, and the hardware was pushed off to sort of a “hobby” status while Apple concentrated on the iPhone and iPads. Only in the past 3 years has it emerged with the power and software it really needed from the beginning, especially as Apple Silicon A series processors sprouted.

      Fast forward to today and we see the younger Millenials, Gen X, Y, Z, etc. abandoning the Cable subscription models for skinny bundles with supposedly finer granular choices – but of course, that didn’t last long – Netflix started the moves, then practically everyone in TV distribution including Telecoms (ATT, Verizon), Internet distribution (Spectrum), outside providers (Amazon, Roku, Hulu, etc.), and the content providers themselves (Disney, Paramount/CBS, etc.) all decided to offer their own streaming services to retain as much profit as possible and not have to discount prices for further distribution. And of course, each one wants to have a “low cost” and premium cost subscription package for their content and delivery.

      Pretty soon, most people will have 2-4 streaming services which, in the aggregate, cost about the same as their old Cable plus internet services, a little less, a little more, and maybe, just maybe, more entertainment choices without paying for hundreds of channels they would never use – maybe. Meanwhile, Apple finally took the plunge into revamping the Apple TV and content/service offerings.

      0
      August 3, 2021
      • Bart Yee said:
        In retrospect, it was probably a missed opportunity for Apple to get heavily into streaming, a major partnership with Pixar/Disney when they were down, or to purchase a studio but the risk of culture shock, dilution of focus, and unease with venturing out of core disciplines was very real for Cook, et. al. during the Jobs passing transition, and only recently has that changed, no doubt helped by Apple’s superior cash position and user market clout. It would not surprise me to see consolidation in the Streaming sector over the next 5-7 years and seeing Apple TV emerge as a major distribution player in some countries.

        I agree that the concept of the user chosen skinny bundle is still likely to be the superior economic and content choice for most and Apple TV should be able to deliver that in one, easy to use, elegant user experience.

        0
        August 3, 2021
  7. Gregg Thurman said:
    They aren’t AppleTV subscriptions, they are subscriptions offered through AppleTV.

    0
    August 3, 2021

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