App Store is still growing, but not as much as expected says Katy Huberty

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A slowdown in App Store growth in the month of May could pose a risk to Apple's Services revenue in the June quarter, according to investment bank Morgan Stanley.

In a note to investors seen by AppleInsider, Morgan Stanley lead analyst Katy Huberty offers her thoughts on new Sensor Tower estimates that suggest App Store net revenue growth has declined year-over-year in May.

Based on the Sensor Tower estimates, Huberty believes that App Store revenue growth decelerated to 4% year-over-year in May, down from 8% year-over-year growth in the month of April.

Although results were weaker across the board, China was one of the main drivers of the weakness. Net revenue growth in that region decelerated 8 points month-over-month to just 3% yearly growth despite an easier year-over-year compare.

Huberty believes that stronger growth in April was driven by fresh Covid lockdowns in China, and the deceleration in May represents a moderation in demand for new apps and services as areas slowly reopened.

By category, only 2 of the 10 largest App Store categories saw net revenue growth accelerate in May. Gaming, which is the largest App Store segment with 60% of the revenue share, saw a 5-point decelerated from April and a 1% decline year-over-year.

In the quarter to date through the month of May, App Store net revenue is up 6% from the year-ago quarter. Because App Store compares get tougher in the month of June, Huberty believes there is now downside to her June quarter revenue forecast of 15% year-over-year growth.

"While we believe Apple user spending is more resilient at all stages of the economic cycle, which positions Apple better than other consumer hardware peers, a deceleration in App Store growth likely points to fading consumer spending on goods/services that accelerated during the pandemic," she writes.

However, Huberty remains bullish on long-term App Store and Services growth. The slowdown in May could just be indicative of near-term headwinds, she added. Beyond the June quarter, the analyst believes there's a path for growth to accelerate once more.

Huberty is maintaining her 12-month Apple price target of $195. The target is based on an implied price-to-earnings multiple of 30.3x on a 2023 earnings-per-share estimate of $6.43.

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4 Comments

amar99

said about 1 year ago

Not sure how an app store with an infinitely expanding collection of 99% useless apps is supposed to be a sign of health, but one which doesn't expand in terms of the number of apps is tagged as unhealthy or concerning. To me, a slowdown would indicate that the store's getting too crowded to support new devs, and the fact that the platform has basically stayed the same for over a decade for the most part. There might be more than 10 great apps which have paid to push themselves to the top of lists, searches, etc. But we may never know because they're buried under everything else thanks to the search options Apple has implemented.

Dear Apple: Make your search function in the appstore more powerful please! We need more curated lists of apps which are actually good, not ones which match a set of keywords or socially-promoted criteria.

rob53

said about 1 year ago

I'm sick and tired money-based analysts. They all have their agendas, most not having anything to do with the long term success of a company. Everything is short term. They all need to just go away.

slurpy

said about 1 year ago

amar99 said:

Not sure how an app store with an infinitely expanding collection of 99% useless apps is supposed to be a sign of health, but one which doesn't expand in terms of the number of apps is tagged as unhealthy or concerning. To me, a slowdown would indicate that the store's getting too crowded to support new devs, and the fact that the platform has basically stayed the same for over a decade for the most part. There might be more than 10 great apps which have paid to push themselves to the top of lists, searches, etc. But we may never know because they're buried under everything else thanks to the search options Apple has implemented.

Dear Apple: Make your search function in the appstore more powerful please! We need more curated lists of apps which are actually good, not ones which match a set of keywords or socially-promoted criteria.

Lot of bullshit in this post. "The platform basically stayed the same". Uh, no. The App Store has had massive changes and improvements over the past decade. 10 great apps? What?

There's a ton of curated app lists in the store, and lots of editorialized content. I've never, ever had an issue finding high quality apps. Also, this isn't a "sign" of anything. An App Store can't keep growing at an exponential rate, you reach a point of saturation.

sdw2001

said about 1 year ago

slurpy said:

amar99 said:

Not sure how an app store with an infinitely expanding collection of 99% useless apps is supposed to be a sign of health, but one which doesn't expand in terms of the number of apps is tagged as unhealthy or concerning. To me, a slowdown would indicate that the store's getting too crowded to support new devs, and the fact that the platform has basically stayed the same for over a decade for the most part. There might be more than 10 great apps which have paid to push themselves to the top of lists, searches, etc. But we may never know because they're buried under everything else thanks to the search options Apple has implemented.

Dear Apple: Make your search function in the appstore more powerful please! We need more curated lists of apps which are actually good, not ones which match a set of keywords or socially-promoted criteria.

Lot of bullshit in this post. "The platform basically stayed the same". Uh, no. The App Store has had massive changes and improvements over the past decade. 10 great apps? What?

There's a ton of curated app lists in the store, and lots of editorialized content. I've never, ever had an issue finding high quality apps. Also, this isn't a "sign" of anything. An App Store can't keep growing at an exponential rate, you reach a point of saturation.

He fell for the analyst nonsense. Think about the implication. The App Store is declining! In fact, that’s not at all the case. It’s expanding year-over-year just not quite as quickly. “Decline in revenue growth year over year.” Never mind that it’s growing during an increasingly tough time.