Morgan Stanley: Slowdown in App Store Revenue May Tank 3Q Forecast

06 JUNE 2022 - Echoing sentiments shared last week, Morgan Stanley analyst Katy Huberty has noted slower growth than expected for the App Store. I told you Friday of a note from Evercore analyst Amit Daryanani, wherein he said App Store revenue for May grew 4%, a significant decline from April’s 9% growth. He and his said

[They] had expected growth to accelerate as comps became easier, so the slowdown is somewhat surprising, especially as China saw a large deceleration when we were anticipating some uplift from the ongoing lockdowns…

Now, Apple Insider has Huberty seeing similar numbers. She and hers also saw App Store revenue growth of 4% in May, down from the 8% growth they’d tracked in April. Huberty also points to China as an area of interest, though for a very different reason. Basically, her team thinks April’s 8% growth was driven by a spike in COVID lockdowns in China. As those eased in May, so did App Store revenue growth. This presents a problem for her Apple expectations, as year-on-year App Store comparisons get tougher in June. According to the Apple Insider piece, “Huberty believes there is now downside to her June quarter revenue forecast of 15% year-over-year growth.”

It’s not Apple. It’s the everything. Quoting her note:

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…

“Beyond the June quarter,” Apple Insider says Huberty “believes there's a path for growth to accelerate once more.” Morgan Stanley has a positive rating on Apple shares. Huberty’s price target on the shares is $195.