ab2 January 2024Global Research and Evidence LabApple Inc.Dec 'App Store' rev up ~10% YoY, flattish with Oct and Nov as US growth stalls+10% growth in Dec is unch w/ Oct/Nov as signs emerge the US has plateauedOur analysis of Apple's App Store suggests revenue in the month of December was up ~10% YoY, in-line with ~10% growth in Oct and Nov bringing YoY growth in the Dec quarter to ~10% vs 8.7% in the Sept quarter (Source: Sensor Tower). By geography, App Store was up ~7% YoY in the US during December, almost a 200 bps deceleration from Nov as monthly YoY growth in the largest iPhone market has been between 7% and 9% since April indicating growth in the US could remain stubbornly below 10%. On the other hand, ROW was up ~11.4% YoY in the month of Dec (against a -2.5% last year) as FX was a ~350 bps smaller headwind relative to last year.Mid-teens 'Services' growth possible but App Store weighs on growthGiven the importance of the App Store to overall Services growth (we est 15% of Services total revenue), roughly 10% growth in the December quarter should contribute roughly 1.5 pts of growth implying the rest of Services revenue has to grow 16-17% to hit our 15.5% estimate. On the last earnings call, Apple management noted it expected Services "average revenue per week to grow at a similar strong double-digit rate..." In Sept-23, Services revenue grew 16.3% compared with our Dec forecast of 15.5%. While Apple's Dec-22 quarter last year benefitted from an extra week, given the subscription nature of the Services segment, the comp is not as difficult as the iPhone comp that experienced a 14 week quarter last year compared to 13 weeks this year. FX headwinds ~50 bps better in Dec qtrLast quarter, currency was a 2 point headwind to reported revenue, a modest improvement from nearly 4 points in the June quarter. For the December quarter, mgmt guided to roughly a 1 point headwind. Based on current FX rates, we estimate the FX headwind in the December quarter is only ~50 bps, better than our 100 bps forecast. Weakness in the US dollar relative to key currencies including the Euro, Yen, and Chinese Renminbi as interest rates declined in Nov and Dec should be a modest tailwind for the App Store given roughly two-thirds of revenue is derived outside the US. Our $190 PT reflects a "Core" valuation and optionalityOur $190 PT is derived via a SOTP to account for the option value of new products and reflects a $176 value for Apple's "Core" and $14/share for Apple's auto opportunity.Highlights (US$m)09/2109/2209/2309/24E09/25E09/26E09/27E09/28ERevenues365,817394,328383,285399,069409,410420,943432,436443,850EBIT (UBS)108,949119,437114,301120,358121,215124,641128,000131,806Net earnings (UBS)94,68099,80396,723100,531101,491104,756108,012111,692EPS (UBS, diluted) (US$)5.616.116.126.536.777.167.578.01DPS (net) (US$)0.850.900.940.981.021.061.101.14Net (...
