Apple Inc. (NASDAQ:AAPL) said its red-hot Services division lost some momentum in the fiscal third quarter, with CFO Kevan Parekh pointing to an unusual culprit: there was no blockbuster “F1“ movie release this year to boost Apple TV+ revenue.
Apple’s fiscal third quarter, ended June 27, Services revenue came in at $30.7 billion, up 12% year-over-year and a June-quarter record. But that’s a sharp deceleration from the 16% growth Apple posted just one quarter earlier — and CFO Parekh went out of his way to explain why on Wednesday’s earnings call.
What’s Behind the Slowdown?
Foreign exchange was the biggest driver of the slowdown, Parekh said. But he also flagged a much stranger factor: last year’s quarter included the theatrical release of “F1,” one of the highest-grossing sports films in history, which boosted Apple TV+ revenue. This year, there was no equivalent release — creating a tough comparison that dragged on growth.
“That had a favorable impact on both the June quarter and also the September quarter in the year ago,” Parekh said, adding that Apple had no comparable theatrical release this year.
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Parekh also acknowledged “headwinds in mobile gaming” that weighed on App Store performance, though he noted the App Store still delivered a June-quarter revenue record.
The executive added that Apple continues to operate under a U.S. court ruling affecting App Store link-out transactions, but said the company is encouraged that the Supreme Court has agreed to hear its appeal.
Despite the slowdown, Parekh said Apple posted June-quarter records across advertising, AppleCare, Apple Music, video and the App Store, while Apple TV+ viewership reached an all-time high. The company also surpassed 1.5 billion paid subscriptions and set all-time records in cloud services and payment services.
Apple Expecting Further Slowdown
Parekh warned that Services growth is expected to slow further in the September quarter as foreign exchange remains a headwind. He said currency effects alone are expected to reduce the year-over-year Services growth rate by another 2.5 percentage points sequentially, while mobile gaming softness is likely to remain a drag even as Apple continues to see strength across most other Services categories.
Tim Cook’s Final Earnings Call as CEO
Thursday’s call marked Tim Cook‘s final earnings call as Apple CEO. During the call, Cook confirmed that John Ternus will lead the company’s quarterly calls going forward. Cook described the handover to Ternus as “going seamlessly” and said he’s excited for Ternus to lead Apple into its next era, adding that he couldn’t be more confident in Ternus’s leadership or Apple’s executive team. The transition becomes official on Sept. 1, when Cook moves into the role of executive chairman and Ternus, currently senior vice president of Hardware Engineering, becomes CEO.
Price Action: AAPL stock was up 22.65% year to date, 15.23% over the past month and 59.50% over the last year. The stock closed 1.41% lower at $333.43 on Thursday before falling another 6.50% in after-hours trading, according to data from Benzinga Pro.
Benzinga Edge Stock Rankings show Apple maintains strong price trends across the short, medium and long term, backed by a solid Quality score.
Credit: David Kirouac-Imagn Images via Reuters Connect
