Apple’s Services growth could be about to slow down

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iPhone sales may be slowing down, but investors have held onto promising data points like Apple’s impressively growing Services division. According to some, this burgeoning part of Apple’s business even has the potential to make up 40 percent of the company’s gross profits by fiscal 2020.

Macquarie Research analyst Benjamin Schachter isn’t quite so smitten, however. In a new note to clients, Schachter claims that growth in the Services division is about to start slowing down.

“Unfortunately, right as investors are becoming more interested in Services as a meaningful part of the story, we think it is now about to slow,” he writes. He points to information like the fact that the Asia Pacific region accounted for around 60 percent of App Store spending last year. This, in turn, made it one of the chief drivers of growth for Services.

The problem that Schachter foresees is a potential “freeze of new game registration in China that will start to become a more prominent drag on new game spending into next year.” Chinese regulators are currently not approving the sale of new titles due to concerns that the games are too addictive or violent.

Schachter also doesn’t think there will be big growth for Apple Care due to a fall in hardware sales. Despite the rise in Apple Music, iCloud and Apple Pay usage, Schachter doesn’t think these are big enough money generators to offset the decline elsewhere.

Slowing growth?

As a result, he’s predicting that the growth of Services will slow from 26 percent in fiscal 2018 to 22 percent in fiscal 2019. That’s still growth, of course, but — as with the recent concerns about Apple’s latest record-breaking quarters — suggests that things are starting to slow down.

Schachter lowers his overall price target on Apple from $222 to $188. At time of writing, AAPL was trading at $169.10.

Source: Barrons