Market Overview

Morgan Stanley: Deceleration In China Could Leave Apple Services Revenue Below Consensus

Morgan Stanley: Deceleration In China Could Leave Apple Services Revenue Below Consensus

China seems to be emerging as Apple Inc. (NASDAQ: AAPL)'s Achilles' heel, with the sell-side harping over its potential impact on the iPhone maker. 

The Analyst

Morgan Stanley analyst Katy Huberty maintained an Overweight rating on Apple with a $247 price target.

The Thesis

Apple's App Store revenue may have hit a softer-than-expected $3.6 billion in the September quarter, Huberty said in the Wednesday note. (See her track record here.) 

The estimate is based on data compiled by Sensor Tower, which showed the App Store generated $8.4 billion in payments to developers in the quarter.

China is the single largest revenue-generating country for the App Store, fetching it a little more than $1 billion in net revenue during the quarter and accounting for about 29 percent of total App Store revenues, the analyst said. 

Yet growth in China App Store revenue has been decelerating for about eight consecutive quarters, with the September quarter likely to have seen a slowdown in growth to 16 percent, Huberty said. 

The slowdown in gaming-related App Store revenues in China is primarily due to the pause in gaming license approvals by Chinese regulators and is expected to last through the rest of the year, she said. 

If other Services rake in revenues in line with estimates, Morgan Stanley projects September quarter Services revenues of $9.8 billion, below Morgan Stanley's $10-billion estimate and the $10.1-billion consensus estimate. 

Exposure to China is the biggest near-term risk for Apple given slower Chinese gaming approvals and the implications of escalating trade tensions, Huberty said. 

That said, Morgan Stanley believes many of the "App Store blemishes" are transient, and remains bullish on the longer-term sustainability of App Store growth.

The Price Action

Apple shares have gained about 32 percent year-to-date.

Related Links:

6 Reasons To Love Apple, According To JPMorgan

Cramer Says 'Nibble' Away At Tech, While Pro Likes Apple

Photo courtesy of Apple. 

Latest Ratings for AAPL

Jan 2020MaintainsNeutral
Jan 2020MaintainsOverweight
Jan 2020MaintainsBuy

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings

Posted-In: App Store Katy Huberty Morgan StanleyAnalyst Color Price Target Reiteration Analyst Ratings Best of Benzinga


Related Articles (AAPL)

View Comments and Join the Discussion!

Latest Ratings

RPAYCantor FitzgeraldMaintains18.0
CMSCredit SuisseDowngrades
PBCTStephens & Co.Maintains15.5
TTECCowen & Co.Initiates Coverage On50.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at