Apple's sprawling services business has been a bright spot for the consumer electronics giant for years, helping to fuel quarterly earnings beats. But now growth in the unit is slowing, creating an issue for Apple stock.
In the June quarter, Apple services revenue grew 12% to $19.6 billion and accounted for nearly 24% of the company's total sales. But that's down from 17% growth in the March quarter and 24% growth in the December quarter. And Apple expects growth in the unit to continue to decelerate in the current quarter.
The largest component of the services business, the App Store, stopped growing last month, Evercore ISI analyst Amit Daryanani said in a note to clients Monday. Still, he rates Apple stock as outperform with a price target of 185.
On the stock market today, Apple stock fell 0.9% to close at 160.01.
Apple Stock Consolidating
"The App Store did not grow in July, the first month without growth since the Store's inception," Daryanani said. App Store sales rose just 5% in Apple's fiscal third quarter ended June 25, he said.
Meanwhile, the App Store is facing regulatory challenges worldwide that could negatively impact sales, he said.
"The App Store remains the largest component of services revenue, but it has become less important to the overall services growth rate," Daryanani said. "New opportunities (payments, advertising) are becoming more significant drivers of growth."
Other Apple services include AppleCare, iCloud, Apple Pay, Apple Music, Apple TV+, Apple Arcade and other offerings.
Apple stock has been consolidating for the past 31 weeks with a buy point of 183.04, according to IBD MarketSmith charts.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
