Apple’s services business is currently thriving at record levels, yet it is encountering significant headwinds. The core of this sector, the App Store, faces mounting regulatory scrutiny and a downturn in mobile gaming, both of which have stifled overall services growth.
During Monday’s earnings call, Apple indicated a potential strategy to elevate services revenue by leveraging third-party applications. The specifics of this approach, however, remain somewhat vague.
Highlighting the potential for AI-driven growth, Chief Financial Officer Kevan Parekh stated: "On the product side, you know, we feel AI offers a compelling reason for customers to upgrade and switch in order to get the latest capabilities, and we also feel there’s opportunities across third-party apps and partnerships as well as first-party opportunities."
While Parekh did not elaborate on the specific nature of these opportunities, Reuters reported that investors are speculating whether Apple could profit by distributing third-party AI agents through the App Store and retaining a percentage of their generated revenue.
Regulatory shifts have already impacted Apple's financials, notably an estimated 18% drop in U.S. commission revenue following new regulations in Brazil and Japan. Furthermore, legal challenges, such as the lawsuit by Epic Games, forced Apple to loosen its grip on payment processing, allowing apps to redirect users to external systems.
Addressing the App Store's challenges directly, Parekh noted that performance during the September quarter mirrored the previous year. Despite this, the company saw a record number of paid subscriptions, including double-digit growth from third-party apps. However, he acknowledged ongoing headwinds in the mobile gaming sector.
Looking ahead, Parekh projected services growth of 8 to 9% for the December quarter. This forecast accounts for projected sequential headwinds, particularly from third-party licensing and foreign exchange fluctuations.
TechCrunch has contacted Apple for further clarification on these potential developments and will provide an update if a response is received.
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