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Apple’s latest Form 10-K recognizes some additional risks for the App Store and also states that advertising is now the primary revenue driver for the Company’s Services business.
In a note to investors seen by AppleinsiderMorgan Stanley analyst Katy Huberty highlighted some of the changes and additions in Apple’s latest Form 10-K, which is a summary of a company’s financial position that the Securities and Exchange Commission requires from companies that respond to specific criteria.
For example, the company added more granular risks to its Form 2021 10-K specifically related to the App Store. Apple lists the European Union’s digital markets bill, which would force Apple to change its App Store business model. Apple also cited several ongoing antitrust investigations as risks.
Advertising has also emerged as the primary driver of Services revenue growth, leading the App Store and Apple cloud services. In 2020, the App Store was the biggest driver in the category. Apple’s advertising segment includes the payments Google makes to Apple to keep the search engine the default on iOS, as well as search ads on the App Store.
Additionally, Huberty highlights the fact that non-trade receivables from suppliers – which are an inventory creation at contract manufacturing companies – grew 25% year-over-year in the September quarter.
The analyst believes that the increase in non-trade receivables and supplier inventories reflects the number of releases as well as higher demand for the current iPhone 13 lineup compared to the iPhone 12.
Huberty maintains its 12-month Apple price target of $ 164, which is a coin sum target based on a multiple of 5.6 times the value of the company’s sales on Apple products and a multiple of 11.2 EV / sales on services. This translates to an implied EV / Sales Target multiple of 6.8x and a Target Price / Earnings multiple of 28.5.