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Morgan Stanley analyst Keith Weiss took note of the net revenue growth deceleration observed in Apple’s (NASDAQ:AAPL) App Store for the month of May.
The growth fell to +4% Y/Y in May on the back of the broad-based deceleration across all regions except the US. The App Store previously saw 8% Y/Y growth for April.
For Weiss, App Store’s May results were “weaker than expected.”
“One of the main drivers of May App Store weakness was China, which accounts for 26% of total T12M App Store spend. In May, App Store net revenue growth in China decelerated 8 points M/M to just +3% Y/Y, despite a 3 point easier Y/Y compare. We believe this implies April results (of +11% Y/Y) were likely aided by renewed COVID lockdowns in major metropolitan cities, and May’s results reflect a moderation of demand as some areas slowly re-opened. New video game license approvals also likely aided April App Store results in China, with China gaming net revenue growth decelerating 8 points M/M in May, to +6% Y/Y,” Weiss wrote in a client note.
By categories, only 2 categories saw the new revenue growth accelerate in May with Gaming – the largest sector – decelerating 5 points from April.
All in all, the analyst sees downside risk to MS’ June quarter App Store forecast of +15% Y/Y.
“While we believe Apple user spending is more resilient at all stages of the economic cycle, which positions Apple better than other consumer hardware peers, a deceleration in App Store growth likely points to fading consumer spending on goods/services that accelerated during the pandemic. While we are bullish on the longer-term App Store and Services outlook, a deceleration in App Store growth (and monetization) could be a near-term headwind to results,” Weiss added.
Still, Weiss sees a path for App Store growth to return to more healthy numbers beyond the June quarter.
“With the health of the consumer and the potential shifting nature of consumer spending patterns a key debate entering the summer months, an acceleration in App Store growth could help to dispel the bear concern of a more permanent App Store slowdown,” the analyst concluded.
