Investment bank Morgan Stanley on Tuesday said Wall Street’s estimates for Apple (AAPL) services growth are too low. Apple stock got a modest boost on the news.
Morgan Stanley analyst Katy Huberty raised her revenue forecasts for Apple services to account for strong App Store sales and accelerating growth in Google traffic acquisition costs. Alphabet‘s (GOOGL) Google pays Apple for internet search traffic on its devices.
In a note to clients, Huberty said she is “increasingly convinced that consensus Services forecasts over the next two-plus years are too low.”
She now forecasts Apple services revenue growth of 22% in fiscal 2021, vs. Wall Street’s estimate of 18% growth. Apple’s fiscal 2021 ends Sept. 25. She also raised her Apple services growth target for fiscal 2022 to 17%, vs. analysts’ view of 13%.
Apple Stock Price Target Lowered
Apple plans to report its fiscal second-quarter results on April 28.
Apple’s services business is the company’s second-largest unit after the iPhone. In the December quarter, it accounted for 14% of the company’s total revenue. Apple’s services include the App Store, AppleCare, iCloud, Apple Pay, Apple Music, Apple TV+, Apple Arcade and other offerings.
Huberty reiterated her overweight, or buy, rating on Apple stock. However, she cut her price target on Apple stock to 156 from 164.
‘Key Pillar’ In Subscription Services
Also Tuesday, Cowen analyst Krish Sankar maintained his outperform rating on Apple stock with a price target of 153.
In a note to clients, Sankar said he believes the Apple News+ service is a “key pillar” in the company’s growing subscription services.
He forecasts Apple’s News app advertising and News+ subscriptions could reach $2.2 billion in revenue by fiscal 2023. That compares with $1 billion in revenue in fiscal 2020, Sankar said.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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