Why One Apple Analyst Is Cautious on Devices and App Store Growth

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Apple Inc. (NASDAQ: AAPL) has made some serious headway over the past month, begging the question whether the stock has run too much. One analyst thinks so. Nomura released a report in which it notes iPhone price concessions have not yet bolstered unit sales and App Store growth appears to be slowing.

Nomura reiterated a Neutral rating with a $170 price target, implying a downside of 12.4% from the most recent closing price of $194.02.

The firm does not believe higher trade-in incentives or price reductions to balance FX changes have lifted demand. Also, through February Apple has production continued to underperform a soft China market. Nomura’s U.S. checks suggest near record low replacement demand. The supply chain has not seen an improvement; Nomura’s Taiwan Tech colleague Anne Lee lowered her fiscal 2019 iPhone production forecast from 195 million to 180 million.

According to Nomura’s report:

Our SensorTower work indicates App Store growth slowed to just 15% through February, which is down from 18% in F1Q despite a restoration in China gaming approvals. Slowing unit demand and ASP growth should restrain AppleCare; slowing subscriber growth should limit search licensing sales. Despite our optimism for Apple News+, we hold our Services growth estimate to 19%. We suspect Services margins will blend lower.

Nomura estimates the growth in Apple’s iPhone base has slowed from about 13% in 2017 to 9% today. Slowing sub growth has weighed on Pandora, Zynga, Twitter, BlackBerry and Snap; Netflix and Facebook have overcome the headwind by pivoting to new models. The firm views Apple’s new services as an effort to better monetize its 900 million iPhone user base, particularly in the United States.

As a result, Nomura lowered its fiscal 2019 estimates to $11.32 in earnings per share (EPS) and $253 billion in revenue, from $11.60 in EPS and $257 billion in revenue. Consensus estimates call for $11.40 in EPS and $255.2 billion in revenue.

Shares of Apple were last seen up about 1% at $195.68, in a 52-week range of $142.00 to $233.47. The consensus price target is $180.85.

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