In a statement to clients Tuesday, Morgan Stanley analyst Katy Huberty raised her revenue forecast for Apple in services through 2022, despite lowering the overall price target on AAPL stock.

“After the strong App Store results in the March quarter and an analysis of the key drivers of the Apple Licensing & Other segment, we are increasing our already estimated revenue estimates for FY 21 and FY 22 by 3% and 5%, respectively, and are progressively out of it convinced that Consensus Services forecasts for the next 2+ years are too low, ”wrote Huberty.

Apple Music, iCloud, and the App Store are possibly the most popular Apple services. However, a lucrative licensing deal that makes Google the default provider of iOS search results also generates significant revenue related to services.

Apple supposedly wins 14% to 21% of the annual profit from the Google deal. As reported by The New York Times last year::

“Apple is now receiving an estimated $ 8 billion to $ 12 billion in annual payments – up from $ 1 billion a year in 2014 – in exchange for adding Google’s search engine to its products. It’s probably the single largest payment Google makes to anyone. “

There’s no word on how the Apple and Google deal will scale, if at all, in the years to come. However, if the recent upward trend continues, it will remain a massive part of Apple’s business.

Apple services continue to grow

In her note, Huberty also pointed out the App Store’s success during the COVID-19 pandemic. In the first three months of 2021 Customers spent a massive $ 32 billion on apps for iOS and Android. This corresponds to an increase of 40% compared to the same period of the previous year – and the largest quarter recorded in its history.

Huberty predicts that growth will accelerate this year:

We now forecast Apple Services revenue growth to accelerate 6 points to + 22% YoY in FY21, down from + 19% YoY, nearly 4 points ahead of Consensus Services’ FY21 growth of + 18% YoY.
If we leave the rest of our product estimates unchanged, our total revenue estimates for Fiscal Year 21 and Fiscal 22 will increase 1% and for Fiscal 21 and Fiscal 22 will increase 1% and 3%, respectively.

So if service and total revenue are expected to increase, why has Huberty cut Morgan Stanley’s target price for Apple from $ 164 to $ 155? The analyst quoted something called “Peer Multiple Compression”.

According to Investopedia Multiple compression is “an effect that occurs when a company’s profits rise but the share price does not move in response. The result is that price multiples, like P / E ratio, are reduced as the denominator increases while the numerator stays the same, although there may not be anything fundamentally wrong with the company. “

With that in mind, Huberty lowered Morgan Stanley’s price target on AAPL:

“The multiple compressions over the past two months, especially with Apple’s higher-growth services, more than offset our higher revenue and profit estimates, lowering our new part-sum-based price target to $ 156, or 33x FY22 EPS $ 164 previously.”

How do you see the great future growth in Apple’s Services division? Let us know what you think in the comments below.

Over: Apple 3.0