Apple Inc. is increasingly likely to beat analyst consensus for services revenue in the March quarter, thanks to strong growth in App Store developer revenue, according to Evercore ISI analyst Amit Daryanani.
What Happened: In a research note on Tuesday, Daryanani noted that even as Wall Street models call for Apple’s services growth to decelerate to 16% in the March quarter, he thinks the ongoing strength in app downloads point to an “increasing likelihood of upside to consensus estimates,” Barron'sreported. In the preceding December quarter, Apple’s services revenue jumped 24% to $15.76 billion.
Daryanani projects App Store developer revenue growth of 30 percent in the March quarter to $4.4 billion, following gains of 40% in January and 31% in December.
Further, the analyst estimates Apple’s services business should be able to grow at a 19% compounded growth rate through the September 2024 fiscal year and top $100 billion in revenues, including $29 billion from Apple Music and $6 million from Apple Pay. At this point, services would be 30% of Apple’s overall revenue and 45% of gross profit.
Daryanani also projects Apple Arcade and Apple TV+ to reach 80 million to 90 million subscribers each over the next five years. He maintained his Overweight rating and $163 price target on Apple shares.
Why It Matters: Apple’s services business, which includes subscription offerings in music, video, gaming, and fitness, is now the tech giant’s second-largest segment after the iPhone. The company has increased its focus on the segment amid sluggish iPhone sales over the past few years.
According to areport by Forbes, the services segment could be the biggest driver of Apple’s profits by 2025.
Price Movement: Apple shares closed more than 2 percent lower on Tuesday at $125.12, but added almost 0.4 percent in the after-hours session.
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