Apple's iPhone sales may be slowing down, but the company's App Store business could show better-than-expected revenue growth in the company's September quarter, Morgan Stanley analysts said in a note Friday.
Morgan Stanley pointed to new research from app data tracking firm Sensor Tower, which shows that August App Store revenue saw the strongest year-over-year growth since February 2018 and the largest month-over-month acceleration since early 2015. The firm maintained its overweight rating and $247 price target on Apple's stock.
The report comes as Apple is increasingly relying on profits from nonhardware products. Revenue in services, which includes the App Store, Apple Care, Apple Pay, iCloud and Apple Music, are still a smaller revenue contributor than the iPhone, but are expected to become more important over time.
Sensor Tower data shows App Store revenue growth accelerating 28% year over year in the month of August, a meaningful uptick from July, when it saw revenue growth of 18.9% year over year.
"Even considering the expected [foreign exchange] headwind, App Store revenue is on track to beat our September quarter forecast of +18% Y/Y with compares becoming easier in the month of September," Morgan Stanley analyst Katy Huberty said.
The App Store's entertainment category posted 28% year-over-year revenue growth, up from 8.3% in July, which should help ease investor fears around entertainment companies "bypassing the App Store billing platform," Huberty said. Spotify and Netflix have led the charge of companies seeking to sidestep big app stores due to their in-app purchase rules.