Apple, Inc. (AAPL) made history earlier this month by becoming the world’s only $1 trillion public company. However, analysts say Apple Services trends suggests there’s still value left in AAPL stock even at a $1 trillion valuation.
Bank of America analyst Wamsi Mohan has raised his price target for AAPL stock from $230 to $250, a target that represents 16 percent upside from Apple’s current price. Mohan says there has been a subtle shift in the mix of Apple’s App Store revenue in recent quarters that suggests its impressive growth rates could be sustainable in the long term.
“Our analysis of third-party data indicates that, while games remain the largest absolute contributor to App Store revenue, the relative contribution from games is coming down,” Mohan says.
Since 2016, the percentage of App Store revenue derived from games has declined from 82 percent to 72 percent. Games now represent just 27 percent of overall Services segment revenue for Apple, down from 32 percent just two years ago.
In addition, Mohan says App Store revenue growth is being driven largely by non-gaming categories, an encouraging sign for Apple stock investors.
As a result of the new trends, Bank of America has raised its 2019 and 2020 Apple earnings per share estimates from $13.98 and $15.57 to $14.22 and $15.96, respectively. Mohan also raised his 2019 revenue target from $294.1 billion to $294.86 billion and his 2020 revenue target from $329.64 billion to $331.97 billion.
Non-gaming entertainment apps are demonstrating particularly strong growth for Apple. Entertainment apps now account for about 7 percent of total App Store revenue, up from just 3 percent in 2016. Social networking apps represent 5 percent of App Store revenue compared to 4 percent two years ago. Photo and video apps’ share of App Store revenue has also grown from 1 percent to 2.5 percent.
While gaming revenue is still growing at an impressive 15 percent rate so far in 2018, photo and video app revenue is up 170 percent, entertainment app revenue is up 114 percent and shopping and lifestyle app revenue is up 100 percent, Mohan says.
“The strong growth rate of non-gaming categories gives…
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