Morgan Stanley: Why Apple services growth is slowing

Spoiler alert: Katy Huberty blames AppleCare.

From a note to clients that landed on my desktop Wednesday:

Today [Tuesday] Apple provided the quarterly disclosure of [services revenue] reclassifications, which clarified that December 2018 Services growth was 18.3% Y/Y. We estimate this represents a 7 point deceleration from 25% Y/Y normalized growth in the September 2018 quarter…

Importantly, recent third-party App Store data from Sensor Tower suggests App Store growth only decelerated 1 point in the December quarter, with a stable growth rate ex-China, an improving trend from a more meaningful deceleration in September 2018.

Therefore we believe the Services deceleration this quarter is more temporary in nature and largely attributed to AppleCare, which was impacted by the estimated 19% Y/Y decline in iPhone sales in the Dec Q and could account for as much as $425M of the shortfall.

Maintains Overweight rating and $211 price target. 

My take: Huberty had to work hard to find that 7 point deceleration. Apple is not exactly advertising it.