Apple says gaming slowdown, App Store rules hurt services growth

Apple’s services business — which spans the App Store, AppleCare, Apple Music, Apple TV, and cloud services — was the one soft spot in an otherwise record hardware quarter. The company reported $30.74 billion in services revenue for its fiscal third quarter, short of the $31.22 billion Wall Street analysts had expected. Combined with a miss in China, the shortfall sent Apple’s stock down more than 4% in after-hours trading.

CFO Kevan Parekh pointed to several factors behind the services miss, most notably pressure on the App Store. One factor was a slowdown in mobile gaming. Parekh also cited App Store business-model changes in certain countries, including the U.S. — a reference to a court order that now requires Apple to let developers process customer payments outside the App Store, bypassing Apple’s commission. Apple did not quantify how much this specific change hurt App Store revenue, but noted the matter is headed to the Supreme Court for a final decision.

The company did not fully blame the App Store for the miss. Other factors included foreign exchange, which Apple said was the main driver, and a tough comparison to prior quarters that benefited from ticket revenue tied to the “F1” theatrical release. Even so, the App Store set a June-quarter revenue record, a figure that also includes Apple Ads revenue, which has become a more significant part of the business and recently expanded to Apple Maps.

Apple emphasized the segment’s longer-term growth: an all-time revenue record in developed markets, a June-quarter record in emerging markets, and double-digit revenue growth in the “vast majority” of markets it tracks. “Our services continue to attract more customers, and we have now surpassed one and a half billion in paid subscriptions,” Parekh said, adding that both transacting and paid accounts hit new all-time highs in the quarter, with double-digit growth for both in emerging markets.

Apple Ads, the App Store, AppleCare, Apple Music, and Apple TV all set June-quarter records, while cloud and payment services hit all-time highs and Apple TV viewership reached a new high. Apple also pointed to future revenue streams, including its newer Creator Studio subscriptions and upcoming bill-splitting features in Apple Cash, plus this week’s launch of the Apple Upgrade program with Klarna, which could drive more device purchases — and the services attached to them.

Why it matters

The App Store’s commission structure, long one of Apple’s highest-margin businesses, is now facing regulatory erosion just as court-mandated payment changes reach the Supreme Court, making the outcome a direct swing factor for how much of Apple’s future services revenue it can keep.