Apple’s (AAPL) 2024 has been difficult so far. But despite the headwinds the company faces from antitrust lawsuits to declining iPhone sales, there is one big bright spot for Apple: its services business. In the first quarter, services revenue rose 11% year-over-year to $6.3 billion.
And according to BofA Global Research’s Wamsi Mohan, Apple is expected to report another quarter of double-digit growth for the segment when it reports its second-quarter results later this month.
Apple’s services business includes the company’s App Store sales, advertising revenue, AppleCare+, subscription services such as Apple TV+ and more. According to market research firm Sensor Tower, App Store sales rose 11% in the first quarter of the year, compared to 3% in the first quarter of 2023 and 5% in the first quarter of 2022.
Apple’s App Store also seems to be surviving the EU’s new Digital Markets Act (DMA) without any major problems. The law, which took effect in March, forces both Apple and Google to allow consumers to download and install from third-party app stores and inform users that they can switch to third-party web browsers.
Data from Sensor Tower shows that in-app spending on the App Store rose 13% globally in March, but rose 28% in the EU.
“Although the DMA has been in effect for approximately a month, there does not appear to have been a material impact on Apple’s in-app purchase (or subscription) revenue,” the company said.
According to Reuters, EU-based user numbers for third-party browsers like Aloha increased by 250% in March.
But with more than 2.2 billion active Apple devices in circulation, the company likely won’t see much of an impact from third-party browser installs. According to Mohan, App Store installs in the EU have increased by 2% year-on-year since the DMA came into effect, while revenue increased by 24%.
However, Apple also requires app developers who offer apps through third-party app stores to pay a “core technology” fee of 50 euro cents for each app user installation after the first million installations. Apple says the fee is necessary to maintain the security and maintenance of the app, but the European Union’s antitrust regulator, the European Commission, is investigating whether Apple is violating the terms of the DMA.
For now, however, Apple’s services business continues to do well, while the company’s other segments are struggling with declining sales. In the first quarter, Apple reported an 11% decline in its wearables, home and accessories segment, while sales in its iPad business fell 25% in the 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 that problem has to do with China’s tepid economic environment, but the company is also grappling with Huawei and other domestic smartphone makers taking away market share.
Apple’s iPad business is also facing difficulties: sales fell 3% in 2023 and 8% in 2022.
On the legal front, the Justice Department is suing Apple for allegedly hindering competition in the smartphone sector. The European Union also fined the company $2 billion over antitrust concerns related to music streaming services.
We’ll learn more about Apple’s performance this quarter when the company reports its second-quarter results on May 2.
Email Daniel Howley at [email protected]. Follow him on Twitter at @DanielHowley.
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