App Store sees strongest growth in months in September

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Apple's App Store saw its fastest growth rate in months in September, outperforming investment bank Morgan Stanley's net revenue forecasts and implying a strong Services result for the company's fourth quarter.

In a note to investors seen by AppleInsider, Morgan Stanley analyst Katy Huberty cites Sensor Tower data indicating that App Store net revenue grew 16.1% year-over-year in September. That's four points ahead of her forecast and a four-point acceleration from the 12% year-over-year growth seen in July and August.

Nearly all of the App Store's largest market regions saw growth accelerate in September. Importantly, net gaming revenue in China also accelerated despite new regulations curbing the amount of time kids are allowed to play games in the country.

"The broad-based strength in the month of September helped to drive net revenue per download to an all-time record of $0.83/download and salvage what started as a weaker than expected September quarter for the App Store," Huberty writes.

The Sensor Tower data suggests 30 basis points of outperformance versus her Services estimates for the September quarter. It also clocks in at 110 basis points of outperformance versus Huberty's September App Store forecast.

Despite the strength, Huberty has left her App Store and Services forecasts unchanged for now. However, the additional 30 basis points would drive her Services forecast for the September quarter to $18.8 billion — about 2.3% ahead of consensus expectations.

The analyst does caution that there are several unknowns concerning recent legal announcements, including Apple's development lawsuit settlement and any appeals to the Epic Games v. Apple case. She doesn't expect any of the decisions or rulings to take effect until early December, meaning that the App Store won't see an impact until the end of 2021 or early 2022 at the earliest.

Huberty maintains her 12-month Apple price target of $168, which is a sum-of-the-parts forecast based on applying a 5.8x enterprise value-to-sales (EV/Sales) on Apple's product business and an 11.6x EV/Sales multiple on Apple's Services. This results in an implied 7x EV/Sales target multiple for 2022 and a 30x target price-to-earnings multiple.