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Apple Price Target Cut by Morgan Stanley

Morgan Stanley analyst Katy Huberty also raised her revenue forecast for Apple Services.
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Apple  (AAPL) - Get Apple Inc. Report had its price target cut to $156 from $164 a share by a Morgan Stanley analyst who also raised her services revenue estimate for the technology giant.

Analyst Katy Huberty said in a research note that the price target cut reflected lower multiples being granted to several of Apple's peers, but maintained her overweight rating. 

Shares of the Cupertino, Calif. company were up 0.47% to $126.22 in morning trading Tuesday.

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Huberty also said she was raising her Apple Services revenue forecast to account for accelerating Google TAC-related revenue growth (TAC refers to Traffic Acquisition Cost, or ad revenue-sharing payments to partners). She noted that strong App Store "revenue of 28% in F2Q was in-line with our forecast."

"Following strong March quarter App Store results and an analysis of the key drivers of Apple's Licensing & Other segment," she said, "we raise our already above-street FY21 and FY22 Services revenue estimates by 3% and 5% respectively, and are increasingly convinced that consensus Services forecasts over the next 2+ years are too low."

Huberty forecast that Apple Services revenue growth would accelerate to +22% year-over-year in 2021, up from +19% year-over-year previously and nearly 4 points ahead of consensus Services growth of +18% year-over-year.

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In the first quarter of 2021, Apple generated a total of $15.76 billion in services revenue. Services includes iTunes, the company’s online entertainment library, software, digital content and licensing. 

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Huberty said most major App Store regions saw a deceleration in year-over-year growth in the "March quarter relative to the December quarter, as they began to lap the first COVID-19 impacted months of 2020."

Huberty said some countries facing government-mandated regional lockdowns saw an increase in App Store growth.

"Nevertheless, it's clear that the high-level trends we saw in the March 2020 quarter are reversing," she said, "as App Store downloads fell 9% Y/Y off of the record March 2020 quarter, while net revenue per download grew 40% Y/Y, the strongest growth in spend per download in over 3 years."

Last week, UBS analyst David Vogt upgraded Apple to buy from neutral while moving his price target $27 higher to $142 per share.

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