Apple shares are creeping close to a new high Wednesday, getting a fresh boost from a report suggesting that the company’s App Store traffic is running well ahead of expectations in the June quarter.
Morgan Stanley analyst Katy Huberty writes in a research note that App Store net revenue is up 35% for the first two months of the June quarter, nearly twice the 18% growth rate she had been projecting previously. She says that equates to an extra $500 million in services revenue.
Huberty inches up her June quarter earnings estimate to $1.99 a share from $1.92, and bumps up her September quarter forecast to $2.80 a share from $2.74. Huberty maintains an Overweight rating on Apple (ticker: AAPL) stock, and lifts her price target to $340, from $326.
Huberty says preliminary data from the research firm Sensor Tower suggests App Store net revenue grew 39% year-over-year in May 2020, the strongest monthly growth rate since April 2017. That’s up 8 percentage points from April’s growth rate, and 20 points higher than the 19% growth rate in the March quarter. Huberty projects Apple’s services revenue in the June quarter will rise 16.7%, up from a previous forecast of 12%
“Over the last 4 months, the Covid-19 related shelter-in-place/quarantine measures have been a tailwind to the app economy, as consumers have been forced to spend more time than usual inside their home, driving an acceleration in App Store download and net revenue growth,” she writes. “Last month, we predicted that April would mark the peak in App Store growth as countries began easing lockdown restrictions, allowing consumers to resume activities outside of the home. However, high levels of engagement have sustained as the ‘new normal’ (at least in the near-to-medium-term) includes more time spent indoors, which should remain a tailwind to App Store performance.”
Apple stock is up 10% for the year. Since bottoming on March 23, the stock has rallied almost exactly $100 a share, a gain of 45%. The stock is roughly $3 below its closing high of $327.20, set on February 12, 2020.