Executive Summary
Category Performance Analysis
January App Store revenue growth saw positive trends across Apple's three largest categories, which comprise approximately 67% of total Apple App Store net revenue per Sensor Tower data.
The Games category, representing 45% of total App Store revenue, showed improvement with growth rates of -3% yoy compared to -4% yoy in December 2025. While still negative, this represents a stabilization in the gaming segment.
Entertainment spending (~14% of total) demonstrated significant acceleration, reaching +10% yoy compared to just +3% yoy in December 2025. Photo & Video spending (~8% of total) remained robust and stable at +18% yoy, matching December 2025 performance.
| Category | % of Total | Jan 2026 YoY | Dec 2025 YoY | Trend |
|---|---|---|---|---|
| Games | ~45% | -3% | -4% | Improving |
| Entertainment | ~14% | +10% | +3% | Accelerating |
| Photo & Video | ~8% | +18% | +18% | Stable |
Geographic Spending Trends
Apple App Store spending trends were largely positive across Apple's top geographies in January 2026. The United States, representing approximately 36% of total App Store revenue, maintained stable growth at +3% yoy.
Notably, spending trends improved across Apple's next three top regions. China (~19% of total) showed meaningful improvement to -1% yoy from -5% in December 2025. Japan (~10% of total) similarly improved to -1% yoy from -3% yoy, while the U.K. (~4% of total) accelerated to +24% yoy from +19% yoy.
| Region | % of Total | Jan 2026 YoY | Dec 2025 YoY |
|---|---|---|---|
| United States | ~36% | +3% | +3% |
| China | ~19% | -1% | -5% |
| Japan | ~10% | -1% | -3% |
| United Kingdom | ~4% | +24% | +19% |
Off-App Payment Dynamics
A notable development in the gaming ecosystem is the emergence of off-app payment options among top downloaded apps. Three of the top 10 downloaded gaming apps on the US Apple App Store (covering the period from February 1, 2025 to January 31, 2026) now feature off-app payment options: Roblox, Discord, and Fortnite.
"Roblox and Fortnite offer discounts and rebates as incentives to compensate for friction added from making payments off-app."
This trend represents a potential headwind to App Store commission revenue, though January trends suggest the overall impact remains manageable thus far.
| Rank | Game | Downloads (mn) | Off-App Payment |
|---|---|---|---|
| 1 | Block Blast | 23.9 | No |
| 2 | Fortnite | 16.4 | Yes |
| 3 | Roblox | 16.2 | Yes |
| 4 | Discord | 13.0 | Yes |
| 5 | Clash Royale | 12.3 | No |
| 6 | Township | 11.2 | No |
| 7 | Vita Mahjong | 10.5 | No |
| 8 | Royal Kingdom | 10.1 | No |
| 9 | Color Block Jam | 9.1 | No |
| 10 | Magic Tiles 3 | 8.5 | No |
Financial Outlook
We note that January trends track below AAPL's F2Q26 guidance for Services to grow +14% yoy (in-line with F1Q26). However, we continue to expect Apple's Services guide to be supported by faster growth across Apple's other Services categories, including iCloud+, AppleCare+, Apple Pay, and other subscriptions.
| Metric | FY25 | FY26E | FY27E | FY28E |
|---|---|---|---|---|
| Revenue ($ mn) | 416,161 | 469,639 | 493,820 | 517,797 |
| EBITDA ($ mn) | 144,748 | 167,848 | 177,674 | 187,889 |
| EPS ($) | 7.46 | 8.73 | 9.44 | 10.21 |
| P/E (X) | 30.0 | 30.9 | 28.6 | 26.5 |
| FCF Yield (%) | 3.0% | 3.5% | 3.7% | 4.1% |
Key Risks
- Weakening Consumer Demand: Apple's products and services are typically sold to consumers and any weakness in the macroeconomic environment could reduce demand. Lengthening replacement cycles due to improved product durability or lackluster innovation could negatively impact upgrade demand.
- Supply Chain Disruption: Although Apple's suppliers have a global footprint, the majority of final assembly occurs in China. Increased geopolitical tension may result in disruptions to global trade including through tariffs.
- Intensifying Competition: Apple competes across personal devices and a variety of services. While Apple is the largest and most well-resourced among its competitors, it is not the market leader in every single business line.
- Regulatory Risks: Apple is subject to intense regulatory scrutiny in all major markets. Regulatory intervention could result in weakening Apple's competitive advantages if forced to make proprietary products or services available for competitors.
- Off-App Payment Adoption: The emergence of off-app payment options among top gaming apps represents near-term downside risk to App Store commission revenue.
Investment Conclusion
We reiterate our Buy rating on AAPL with a 12-month price target of $330, reflecting 34X our NTM+1Y EPS estimate. This implies approximately 22% upside from current levels.
We continue to believe App Store spending should remain a meaningful growth driver to Apple Services revenue in the future despite near-term downside risk around off-app payment adoption. The January 2026 data showing acceleration to +7% yoy from +6% in December provides evidence of stabilizing trends.
Apple's installed base growth, secular growth in services, and new product innovation should more than offset cyclical headwinds to product revenue. The durability of Apple's installed base and the resulting revenue growth visibility from attaching more Services and Products underpins the recurring revenue opportunity. The majority of gross profit growth over the next 5-years should be driven by Services, which should mark an inflection point in the Services investment narrative and support AAPL's premium multiple.
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