Shares of Apple Inc (NASDAQ:AAPL) came under pressure late last week on the Federal Reserve’s hawkish comments.
Growth of the company’s Services segment has decelerated for six straight quarters and gross margins contracted last quarter, according to Bernstein.
The Apple Analyst: Toni Sacconaghi maintained a Market Perform rating for Apple, while keeping the price target unchanged at $125.
The Apple Thesis: Weakness in the Services segment has been “driven by softness in Apple’s Advertising and App Store businesses,” which together account for around 60% of revenues and 75% of profits in Services, Sacconaghi said in the note.
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“Aside from these two segments, growth has been much steadier for Apple’s other Services businesses, averaging 15% over the last 13 quarters,” he added.
“We believe that weakness in Advertising and the App Store are cyclical rather than structural,” the analyst wrote.
“The digital advertising market is expected to rebound to low double-digit growth, and AAPL should grow faster given its own advertising business,” he said. “We also forecast App store revenues should grow low double digits (lower for gaming; higher for subscriptions),” Sacconaghi further stated.
AAPL Price Action: Shares of Apple had declined by 1.70% to $149.96 at the time of publication Tuesday.
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