App Store grew roughly 12% in June on a reported basis, UBS says

UBS analysis reveals Apple's App Store revenue increased approximately 12% year-over-year in June on a reported basis, significantly benefiting from a weaker U.S. dollar, though foreign exchange-neutral growth was slower at around 10%. While UBS maintains its Services revenue forecast, it notes a slight upside bias due to favorable FX, potentially adding $200 million to estimates and one cent to EPS. The firm also highlights that the impact of the EU's Digital Markets Act on App Store revenue has been relatively muted, limiting overall risk given the EU's high-single-digit share of global revenue.

Analysis

Apple's App Store revenue demonstrated solid reported growth of approximately 12% year-over-year in June, a figure significantly influenced by a 200 basis point foreign exchange tailwind from a weaker U.S. dollar, according to UBS analysis. On a currency-neutral basis, growth was more modest at around 10% and decelerated by approximately 70 basis points from May, indicating that currency fluctuations are a key driver of the reported strength. While U.S. growth accelerated by 100 basis points from the March quarter to 11%, the reported 12% growth in Rest-of-World markets was entirely attributable to FX, as underlying currency-neutral growth was flat at 10%. This data underpins UBS's view that its 11% growth forecast for Apple's broader Services segment has an upward bias; a smaller-than-expected FX headwind could add roughly $200 million to revenue and a penny to the quarterly EPS forecast.

The analysis also suggests that the regulatory impact from the EU's Digital Markets Act (DMA) has been minimal thus far. Despite new rules allowing for alternative app distribution, Sensor Tower data shows EU App Store revenue growth running in the mid-20s percent range since January 2024. Given that the EU constitutes only a high-single-digit share of global App Store revenue, UBS assesses the overall risk to Apple's financials from this legislation as "relatively limited." Consequently, UBS maintains a Neutral rating with a $210 price target, implying that the current stock price fairly reflects these positive currency effects and muted regulatory risks.

Key Decisions for Investors

• Investors should look beyond the headline 12% reported growth and focus on the 10% foreign exchange-neutral figure as a more accurate indicator of the App Store's underlying operational momentum.
• Monitor Apple's upcoming earnings report for a potential beat in the Services segment, as favorable currency movements present a tangible upside risk to current revenue and EPS forecasts.
• The muted impact of the EU's Digital Markets Act suggests that regulatory risks to the App Store model may be less severe than previously anticipated, a factor that could reduce the risk premium associated with the stock.
• Given the Neutral rating and in-line price target from UBS, the current market price appears to have already factored in the positive FX tailwinds and limited regulatory threats, suggesting a hold-and-monitor stance may be prudent absent new catalysts.