Apple: Weaker-than-expected App Store growth in May dampens June quarter results

© Reuters. Apple (AAPL): Weaker-than-expected App Store growth in May dampens June Q results – Morgan Stanley

By Senad Karaahmetovic

Morgan Stanley analyst Keith Weiss noted the deceleration in net revenue growth seen in Apple’s (NASDAQ:) App Store for the month of May.

Growth fell to +4% year-on-year in May due to the broad-based deceleration in all regions except the United States. The App Store previously recorded an annual growth of 8% in April.

For Weiss, the App Store’s May results were “weaker than expected.”

“A major driver of App Store weakness in May was China, which accounts for 26% of total App Store spending T12M. In May, App Store net revenue growth in China slowed by 8 points M/M to just +3% Y/Y, despite an easier Y/Y comparison of 3 points We believe this implies that April results (by +11% YoY) likely helped by further COVID shutdowns in major metropolitan cities, and May’s results reflect moderating demand as some areas slowly reopen New video game licensing approvals also likely contributed to April’s results of the App Store in China, with net gaming revenue growth in China slowing by 8 points M/M in May, to +6% Y/Y,” Weiss wrote in a client note.

By category, only 2 categories saw new revenue growth accelerate in May, with games – the largest sector – slowing 5 points from April.

Overall, the analyst sees downside risk to MS’ App Store forecast for the June quarter of +15% YoY.

“While we believe Apple’s user spending is more resilient through all stages of the business cycle, positioning Apple better than other consumer hardware peers, a deceleration in App Store growth indicates likely a decline in consumer spending on goods/services that has accelerated during the pandemic While we are optimistic about the longer term outlook for the App Store and services, a deceleration in growth monetization) of the App Store could be a short-term headwind for results,” Weiss added.

Still, Weiss sees a path for App Store growth to return to healthier numbers beyond the June quarter.

“With consumer health and the potentially changing nature of consumer spending habits a key debate entering the summer months, an acceleration in App Store growth could help dispel concerns of a slowdown. permanent addition to the App Store,” the analyst concluded.

Maria R. Newman