Bernstein sees weakness in Apple’s Advertising, App Store as cyclical

Bernstein notes that Services growth has decelerated for 6 consecutive quarters and gross margins contracted last quarter, with the weakness being driven by softness in Apple’s Advertising and App Store businesses. The firm forecasts Services to grow 10% in fiscal 2023 as reported, and 13% at constant currency, in part due to weaker advertising growth. That said, Bernstein believes that weakness in Advertising and the App Store are cyclical rather than structural. On net, it sees Services growing 12%-15% over the next 3 – 5 years, driven by installed base growth, increased ARPU and new services offerings. The firm has a Market Perform rating on the shares with a price target of $125.