Key Takeaways:
Apple's App Store net revenue fell 0.6% year-over-year through mid-August, the first decline in four years, Morgan Stanley data shows.
"The decline reflects lower commission rates, developer linkouts to external payments, weaker gaming demand, and currency headwinds," Erik Woodring, analyst at Morgan Stanley, said.
The drop translates to a 20 basis-point downside revision to services revenue growth for the September quarter. Apple reported fiscal Q3 revenue of $109.4 billion, up 16 percent year-over-year, with EPS of $2.02 versus consensus of $1.89 — the ninth consecutive earnings beat. iPhone revenue climbed 22 percent to $54.3 billion, and Mac revenue rose 29 percent. Apple captured 49 percent of global smartphone revenue in Q2 while accounting for 23 percent of shipments.
Apple shares closed at $311.30 on Aug. 20, down 1.75 percent, trading 9.7 percent above the GF Value estimate of $283.73. The stock's trailing P/E of 35.7x exceeds its five-year median of 30.68x, and the forward P/E stands at 32.59. Insiders sold $16 million in shares over the past three months, while 39 gurus hold positions — 10 adding and 21 trimming.
The App Store decline comes as large-cap technology stocks face broad selling pressure. Apple fell alongside Alphabet, Microsoft, Amazon, and Meta Platforms as bond yields and oil prices rose, adding macro pressure to growth stocks. The selloff pushed Apple's market capitalization to roughly $4.54 trillion.
iPhone production builds for the current quarter hold at 54 million units, with expected shipments of about 58 million units for the September fiscal quarter. iPad builds were cut by 1 million units after recent price increases. AppleCare pricing adjustments may partially offset the services pressure.
Apple's GF Score of 96 out of 100 reflects strong profitability and growth rankings of 10 out of 10 each, though financial strength scores lower at 5 out of 10. The valuation component ranks 7 out of 10, consistent with the stock trading above its model-derived fair value.
The App Store decline marks a break from a multi-year expansion trend in Apple's high-margin services business, which has been a primary growth driver alongside hardware. The next earnings release is expected around Oct. 29, with consensus modeling EPS of $1.98, up 7 percent year-over-year.
This article is for informational purposes only and does not constitute investment advice.
