Hajra Naz
Apple’s services division continues to post record numbers. However, the unit is facing expanding external pressures. The central pillar of that division, the Apple App Store, faces regulatory enforcement and a slump in mobile gaming. These combined factors have dragged on overall service growth.
During Monday’s earnings call, Apple indicated it might seek to increase services revenue through third-party apps. The exact details of that plan remain unclear.
Kevan Parekh, Apple’s chief financial officer, discussed how artificial intelligence could drive long-term revenue growth. Parekh noted.
“On the product side, you know, we feel AI offers a compelling reason for customers to upgrade and switch to get the latest capabilities, and we also feel there are opportunities across third-party apps and partnerships as well as first-party opportunities.”
Parekh did not expand on what specific business models might develop through external app partnerships. However, Reuters reported on Monday that investors are questioning whether Apple plans to monetize third-party AI agents distributed via the App Store. The company could potentially collect commissions on the income those external AI tools generate.
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Regulatory rulings and court decisions have reduced App Store commission collections across several international markets. Even so, Apple’s broader services segment has continued to grow. Independent market estimates from August indicated that U.S. commission collections fell by 18 percent. Revenue collections also dropped in Brazil and Japan after local regulators passed new app store rules.
Apple traditionally maintained tight control over digital purchases within its app ecosystem, taking a cut of all native App Store transactions. However, a major legal challenge brought by Epic Games forced Apple to allow developers to link out to alternative payment methods. Additional antitrust actions worldwide continue to restrict the store’s business operations.
Parekh mentioned these App Store challenges during the investor call. He reiterated that Apple’s services division could branch out into new monetization strategies.
Parekh said.
“We’ve also seen some factors that impacted the performance of the App Store, and during the September quarter, the performance on the App Store was similar to the prior year, and we had a record number of paid subscriptions with double-digit growth for third-party apps on the App Store. ”At the same time, we did see some headwinds in mobile gaming that we’ve talked about before and expect to see those continue into the summer quarter.”
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Parekh added, “As we move ahead, we expect services growth to be between 8 and 9% [in the December quarter]. This outlook contemplates our best estimates on sequential headwinds, primarily from third-party licensing and the additional half-percentage-point of foreign exchange I just mentioned.”
