What happened
Apple (AAPL -2.67%) shareholders had a trading session to forget on Tuesday. The tech powerhouse shed nearly 3% of its value on the day. Meanwhile, the S&P 500 index dipped a slightly less precipitous 2%. An analyst’s somewhat gloomy update was one big reason why.
So what
Before the session opened, AllianceBernstein prognosticator Toni Sacconaghi published a new Apple research note. In it, he highlighted the fact that the growth rate of its services revenue has declined for six quarters in a row. On top of that, its gross margins fell in its most recently reported quarter.
Sacconaghi explained this by writing that Apple’s take from advertising and app store sales has not been strong. This matters, because these sources provide roughly 60% of the tech giant’s total services revenue. He pointed out that in Q3 2021, its advertising growth was over 60%. Now, ad revenues are shrinking. And app store revenue has risen by only 4% on average over the last four quarters.
Meanwhile, Sacconaghi wrote, other elements of the services business have averaged 15% improvement in the last three-plus years of operation.
Now what
Yet the analyst sees hope for a recovery.
“The digital advertising market is expected to rebound to low double-digit growth, and Apple should grow faster given its own advertising business,” he wrote. As it does, app store revenue is positioned to rise at double-digit percentage rates, thanks largely to higher sales of subscriptions — an increasingly popular business model.
Despite the bearish tone of his note, Sacconaghi isn’t recommending investors sell their Apple shares. He maintained his market-perform (hold) stance on the stock, with a price target of $125 per share.
Eric Volkman has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
