App Store data backs up better-than-expected June quarter beat, analyst says

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Apple App Store growth estimates for June suggest strong Services outperformance and increases Morgan Stanley's confidence of a significant June quarter earnings beat.

In a note to investors seen by AppleInsider, lead analyst Katy Huberty estimates that the App Store will grow 18% between June 1 and June 22, suggesting nearly five points of outperformance compared to her earlier forecast.

Back in April, Huberty lowered her Apple Services forecast for the June quarter based on weaker App Store net revenue growth in April. However, a rebound in May and again in June appears to suggest that the App Store is seeing solid growth as lockdowns ease and consumer behavior normalizes.

"When we dig into the underlying data from June-to-date, we come away incrementally bullish on the prospects for accelerating App Store growth in the rest of the year," Huberty writes.

The App Store growth is accelerating in eight of the 10 largest markets from May. There also appears to be a material acceleration in many markets that were hit by the coronavirus pandemic earlier, including China, Taiwan, Japan, and South Korea.

Huberty suggests that this could hint at growth acceleration in Western markets further into 2021. For the September quarter, Huberty forecasts a four-point App Store growth acceleration.

Performance of in-app purchases also appear to be accelerating. Between June 1 and June 22, estimated net revenues per download clocked in at $0.82, higher than $0.78 in April and May. Gaming net revenue also accelerated 9% year-over-year in June, up from 2% year-over-year in May.

Since the App Store comprises around 40% of total Apple Services revenue, which highlights the importance of Huberty's estimates for App Store monthly performance in June.

Currently, Wall Street consensus has Apple Services revenue at $16.2 billion for the June quarter. However, Huberty doesn't believe this takes the App Store acceleration into account.

"And, as a result, we are even more convinced that Apple is likely to outperform June quarter consensus earnings expectations," Huberty says.

In a previous research note, the analyst also forecast that Apple would see strong and sustained growth across its hardware product cycles in the June quarter.

Huberty maintains her 12-month Apple price target of $162, which is a sum-of-the-parts valuation based on a 7x target enterprise value-to-sales (EV/Sales) multiple and a 31x target enterprise free cash flow (EV/FCF) multiple.

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