Apple’s Services business is a bright spot in the company’s rough 2024: BofA

Apple’s Services business is a bright spot in the company’s rough 2024: BofA

Apple’s (AAPL) 2024 has been rough so far. But despite the company’s headwinds ranging from antitrust suits to slowing iPhone sales, there’s one big bright spot for Apple: its Services business. In the first quarter, Services revenue jumped 11% year over year to $6.3 billion.

And according to BofA Global Research’s Wamsi Mohan, Apple is set to report another quarter of double-digit growth for the segment when it announces its second quarter earnings later this month.

Apple’s Services business includes the company’s App Store sales, advertising revenue, AppleCare+, subscription services like Apple TV+, and more. According to market intelligence firm Sensor Tower, App Store revenue grew 11% in the first quarter of the year, up from 3% in the first quarter of 2023 and 5% in Q1 2022.

Apple’s App Store also appears to be surviving the EU’s new Digital Markets Act (DMA) without much issue. The legislation, which went into effect in March, forces both Apple and Google to allow consumers to download and install third-party app stores and notify users that they can switch to third-party web browsers.

Sensor Tower data indicates that while App Store in-app spending grew 13% globally in March, it increased 28% in the EU.

Apple CEO Tim Cook gestures during the inauguration of India’s first Apple retail store in Mumbai, India, April 18, 2023. (Francis Mascarenhas/REUTERS) (REUTERS / Reuters)

“Although the DMA has been in effect for roughly one month, it appears there has been no significant impact to Apple’s revenue from in-app purchases (or subscriptions),” the firm stated.

According to Reuters, EU-based user numbers for third-party browsers like Aloha increased 250% in March.

But with more than 2.2 billion active Apple devices in circulation, the company isn’t likely to face much of an impact from third-party browser installs. In fact, according to Mohan, App Store installs in the EU have increased 2% year over year since the DMA went into effect, while revenue rose 24%.

That said, Apple also requires app developers that offer apps via third-party app stores to pay a 50-euro cent “core technology” fee for each app users install after the first million installs. Apple says the fee is necessary to maintain app security and upkeep, but the European Union’s antitrust watchdog, the European Commission, is looking into whether Apple is violating the terms of the DMA.

For now, however, Apple’s Services business continues to perform well at a time when the company’s other segments are facing declining revenue. In Q1, Apple reported an 11% drop in its Wearables, Home, and Accessories segment, while its iPad business revenue plummeted 25% in the quarter.

And while iPhone sales increased 6% year over year in Q1, they declined 13% in China, Apple’s third-largest market behind North America and Europe. Part of that problem has to do with China’s tepid economic environment, but the company is also contending with a resurgent Huawei as well as other home-grown smartphone makers stealing away market share.

Apple’s iPad business is also facing difficulties, with revenue declining 3% in 2023 and 8% in 2022.

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On the legal front, the Department of Justice is suing Apple for allegedly stymying competition in the smartphone space. The European Union has also fined the company $2 billion over antitrust concerns related to music streaming services.

We’ll find out more about Apple’s performance in the quarter when it reports its fiscal Q2 results May 2.

Email Daniel Howley at [email protected]. Follow him on Twitter at @DanielHowley.

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