Apple (AAPL) has a tough 2024 so far. But despite the company's headwinds, from antitrust lawsuits to weak iPhone sales, there is one big bright spot for Apple. It's a service business. Services revenue for the first quarter was $6.3 billion, an increase of 11% from the same period last year.
And Apple is on track to report another quarter of double-digit growth in this segment when it releases its second-quarter results later this month, according to BofA Global Research's Wamusi Mohan.
Apple's services business includes the company's App Store sales, advertising revenue, and subscription services such as AppleCare+ and Apple TV+. App Store revenue grew 11% in the first quarter of this year, up from 3% in the first quarter of 2023 and 5% in the first quarter of 2022, according to market intelligence firm Sensor Tower.
Apple's App Store also appears to be weathering the EU's new Digital Markets Act (DMA) without any major problems. The law, which took effect in March, requires both Apple and Google to allow consumers to download and install third-party app stores and to notify users that they can switch to a third-party web browser. is required.
According to data from Sensor Tower, App Store in-app spending increased 13% globally in March, compared to 28% in the EU.
“Although the DMA has been in effect for approximately one month, there does not appear to be a material impact on Apple's revenue from in-app purchases (or subscriptions),” the company said.
According to Reuters, the number of EU-based users of third-party browsers such as Aloha increased by 250% in March.
However, with over 2.2 billion active Apple devices in circulation, it is unlikely that the company will face any major impact from installing third-party browsers. In fact, according to Mohan, since the DMA took effect, App Store installs in the EU have increased by 2% year-on-year, and revenue has increased by 24%, he said.
That said, Apple also pays app developers who offer apps via third-party app stores a 50 euro cents “core technology” fee for each app installed by a user for the first 1 million times. I'm looking for it. Apple claims the fees are necessary to maintain the security and maintenance of the app, but the European Union's antitrust watchdog, the European Commission, has questioned whether Apple has violated the terms of the DMA. I'm investigating whether.
But for now, Apple's services business remains strong even as other parts of the company face declining revenue. In the first quarter, Apple reported an 11% decline in its Wearables, Home, and Accessories division, and revenue for its iPad business plunged by 25% in the same quarter.
And while iPhone sales rose 6% year over year in the first quarter, they fell 13% in China, Apple's third-largest market after North America and Europe. Part of the problem has to do with China's tepid economic environment, but the company is also battling a resurgent Huawei and other domestic smartphone makers that are stealing market share.
Apple's iPad business is also facing challenges, with sales expected to decline 3% in 2023 and 8% in 2022.
On the legal front, the Department of Justice is suing Apple for allegedly stifling competition in the smartphone field. The European Union also fined the company $2 billion over antitrust concerns related to its music streaming service.
We'll know more about Apple's performance this quarter when it releases its second quarter results on May 2nd.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter @Daniel Howley.
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