Apple Sets New Services Record Despite Gaming Slowdown and App Store Issues

The tech giant topped 1.5 billion subscribers for its services business, but failed to meet expectations in its fiscal third quarter, citing a slowdown in mobile gaming and App Store revenue.

In its latest quarterly earnings report, Apple revealed that its services revenue fell short of Wall Street analysts' predictions, generating $30.74 billion in the quarter, down from the expected $31.22 billion. This decline, combined with a miss in China, led to a 4% drop in Apple's stock price in after-hours trading.

When asked to discuss the factors contributing to the decline in services revenue, Apple CFO Kevan Parekh pointed to several key issues. Most notably, the company cited a slowdown in mobile gaming and App Store business model changes in certain countries, including the U.S.

The App Store's performance in the quarter was also impacted by a court order requiring Apple to allow app developers to process customer payments outside the App Store, a move that will be heard by the Supreme Court for a final decision. While Apple didn't provide a specific figure for the impact of this issue on App Store revenue, it noted that the matter will be resolved in the coming months.

Other factors contributing to the services revenue miss included foreign exchange rates, which Apple attributed as the main driver, as well as a comparison to prior quarters where the company profited from the success of its F1 theatrical release.

Despite these challenges, Apple remains optimistic about its services business, highlighting its growth potential and record-breaking performance in developed and emerging markets. The company noted that its services segment set an all-time revenue record in developed markets and a June quarter record in emerging markets, with double-digit revenue growth in the vast majority of markets tracked.

Apple also shared that specific segments within its services business are performing particularly well, including Apple Ads, App Store, AppleCare, Apple Music, and Apple TV, which all saw June quarter records. Additionally, cloud and payment services reached all-time highs, and Apple TV viewership reached an all-time high in the quarter.

Looking ahead, Apple is exploring new services revenue streams, including the Creator Studio subscriptions and the upcoming bill-splitting features in Apple Cash, which could deepen customers' engagement with Apple's payments ecosystem. The company also highlighted the potential for its Apple Upgrade program, launched in partnership with Klarna, to drive increases in services revenue by incentivizing customers to purchase Apple devices and services.