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Home / Technology / Could Apple's Services Business hit a wall next year? – The Motley Fool

Could Apple's Services Business hit a wall next year? – The Motley Fool



Apple (NASDAQ: AAPL) has made incredible progress in increasing its service in recent years. For the most part, investors are still too focused on selling iPhone devices, but the Mac has tried its best to change the story. However, the service business may potentially hit a wall next year, with growth slowly as business grows.

Here is the last word on the street.

  Person using Apple Pay in public transport

Apple Pay is still growing nicely. Image source: Apple.

Risks for the Services

Macquarie analyst Ben Schachter published a survey this week, which expresses concern that important parts of the service sector will slow in 201

9. In particular, Schachter believes that licensing, the App Store, and Apple Care will slow down considerable. While other services like Apple Music, iCloud and Apple Pay are still growing on a respectable clip, it is unlikely that these gains will compensate for a decline in other parts of the business.

The Asia-Pacific market represented about 60% of App Store spending last year, according to Schachter's estimates, but spending slowly in the midst of China's breakdown of video games over concerns that video games can be addictive. With nearly 600 million players, China is the largest video game market, and the changing regulatory landscape creates uncertainty for gaming platforms, including Apple. Gaming represents a massive 75% of the total App Store expenses, according to App Annie, with Asia Pacific, accounting for about two thirds of global iOS game spending.

There are also concerns that Apple must revise its App Store structure. The company's 30% cuts have long been the source of thirds of third-party developers and publishers to build their own businesses in the App Store, and Apple made a major license a few years ago by reducing the commission to 15% after the first year of long-term subscriptions. Over time, the pressure to reduce these fees has only grown, with dissatisfied developers (and rivals) often complaining to regulators that the fees are competition competition. In particular, Schachter is not modeling for any changes in Apple's charging structure. It is unclear whether or not Apple will consider reducing its cuts to a greater extent, but it will obviously pose additional disadvantages for its services.

The analyst is modeling for service revenue to grow almost 22% in fiscal policy 2019, down from 26% of service growth that the Mac producer has entered into fiscal policy 2018. For reference, Apple's services revenue growth quarterly:

  Chart showing service revenue growth

Data source: SEC archives. Chart by author.

Schachter is still bullish overall and maintains a superior rating, although the analyst reduced its price target from $ 222 to $ 188.

Evan Niu, CFA owns shares in Apple. Motley Fool owns shares of and recommends Apple. Motley Fool has the following options: long January 2020 $ 150 call on Apple and short January 2020 $ 155 appeals to Apple. Motley Fool has an information rules.


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