Apple's services revenue for the third fiscal quarter was $30.74 billion, below Wall Street's expectations of $31.22 billion. The company disclosed that service revenue growth was hampered by several factors, with pressure on the App Store, a slowdown in mobile gaming, and changes in payment rules in some countries being the most notable reasons for the quarter. Affected by this, coupled with weaker-than-expected performance in the Chinese market, Apple's stock price fell by more than 4% in after-hours trading.
Service revenue was lower than expected.
Apple CFO Kevan Parekh stated in the earnings call that currency exchange rates were the primary factor dragging down service revenue, but changes in the App Store business also impacted the quarter's performance. The company noted that slowing demand for mobile games depressed App Store transaction volume.
Apple also noted that the App Store's business model is being adjusted in some markets, including the United States. This is related to a court order. The order requires Apple to allow developers to process user payments outside the App Store, meaning some transactions will no longer be included in Apple's original commission system.
The impact of US payment rules is becoming apparent.
Apple did not disclose the extent of the impact of this change on App Store revenue, but told investors that the final decision on the matter will be made by the U.S. Supreme Court. For Apple, this change not only affects quarterly revenue but also the future revenue-sharing model for its services business.
In addition to the App Store, Apple also mentioned that the high base of service revenue in the same period last year, driven by the release of the movie "F1", put pressure on year-on-year comparisons this quarter.
The company still emphasizes its growth potential.
Despite missing market expectations this quarter, Apple emphasized that its services business continues to expand overall. The company stated that services revenue in developed markets hit a record high, while emerging markets reached a new high for the June quarter, and most tracked markets still achieved double-digit revenue growth.
Parekh stated that Apple's paid subscriptions have exceeded 1.5 billion, with both transaction accounts and paid accounts reaching new highs during the quarter, and both metrics maintaining double-digit growth in emerging markets.
Apple also mentioned that new service revenue streams are expected in the future, including the newer Creator Studio subscription service and the upcoming revenue sharing feature for Apple Cash. These products are seen as helping to increase user activity within the Apple Pay ecosystem.
In addition, Apple launched the Apple Upgrade program this week in partnership with Klarna. If this program drives more users to purchase iPhones or other Apple devices, it could further boost revenue from subsequent services.
Additional information:Apple's service revenue hit a record high this quarter, but fell short of market expectations, indicating that the high growth of its service business is facing more complex pressures due to regulatory changes and adjustments in consumption patterns.
