What you need to know
- Morgan Stanley is highlighting the risk to Apple's services revenue in its new investor note.
- Analyst Kay Huberty says potential regulation could impact performance.
- The note also highlights Google's payments to Apple to be the default search engine as a long-term risk.
In a note to investors, Morgan Stanley analyst Katy Huberty says that preliminary data from Sensor Tower shows that App Store net revenue grew 30% year-over-year in October.
In a note to investors seen by AppleInsider, lead analyst Katy Huberty writes that preliminary data indicates that the App Store net revenue grew 30% year-over-year in the month of October. That estimate, based on preliminary Sensor Tower data, shows that App Store revenue reached $1.9 billion in October — a nearly 240 basis point acceleration from September quarter growth. Revenue was broad-based and similar across Apple's 10 largest markets, and gaming continued to dominate App Store spending despite fears about the removal of "Fortnite."
Huberty notes that while overall app downloads are slowing down, spending on apps and in-app purchases continues to grow.
"What these trends suggest is that users continue to engage with the App Store at a robust rate. Spending more on apps and in-store purchases despite slowing app downloads, driving net revenue per download to all time highs in October."
However, the analyst also points out in a separate research note that the risks to Apple's services revenue continues to grow as well. Apple even warned investors, in a filing with the United States Securities and Exchange Commission, of a material impact to its bottom line if its commissions were lowered or eliminated.
"If the rate of the commission that the company retains on such sales is reduced, or if it is otherwise narrowed in scope or eliminated, the company's financial condition and operating results could be materially adversely affected."
Concerning any threat to Apple's revenue from Google's payment to make its search engine default on the iPhone, Morgan Stanley believes that, since investigations like the one Google is going through right now usually take years, there is no short-term or mid-term risk there.
"What's more, the fact that these investigations typically take several years provides Apple air cover to improve user adoption of its other Services which can mitigate the potential Google impact."
On a separate front, a report from late October speculates that Apple may even be working to eventually build out its own search engine and cut ties from Google Search.
Apple continues to focus on expanding its services outside of the App Store. In addition to already offering Apple Music, Apple Arcade, Apple News+, Apple TV+, and iCloud, the company is also launching Fitness+ by the end of the year. It also just launched Apple One, its subscription bundling service.