From: Richard Kahn

From: Richard Kahn To: Jeffrey Epstein <jeevacation(q.:gmail.com> Subject: Fwd: Apple, Inc.: China a Growing Headwind to App Store Growth Near-term Date: Wed, 17 Oct 2018 23:41:04 +0000 Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York, 22 tel fa cel Begin forwarded message: From: "Morgan Stanley" Subject: Apple, Inc.: China a Growing Headwind to App Store Growth Near-term Date: October 17, 2018 at 7:07:55 PM EDT To: Reply-To: ,,]Morgan Stanley Wealth Management IIJ ;11 Apple, Inc.: China a Growing Headwind to App Store Growth Near-term ;Download Report EFTA01019391 Katy L. Huberty, CFA - Morgan Stanley October 17, 2018 11:00 PM GMT Sept Q App Store net revenue of $3.6B fell short of $3.86 MSe. Pause in China new gaming approvals coupled with fear of economic slowdown in China present a near-term overhang but we see limited downside to near-term estimates and remain bullish on the long term sustainability of Services growth. App Store growth decelerated by 150bps in C3Q but still growing 20%+. According to data compiled by Sensor Tower, Apple's App Store generated $8.46 in payments to developers in the September quarter, implying App Store net revenue (what is recognized on Apple's P&L, net of payments to developers) of $3.66 (+23% Yre), a quarterly high (1) but below our forecast of $3.86 (+30% Y/Y originally, +32% Y/Y after Sensor Tower restatements; 2). Assuming our estimates for the other Services line items are in-line, these results imply September quarter Services revenue of $9.8B (+15% WY or +24% Y/Y on a normalized basis, excluding the $640M favorable one-time payment from the September 2017 quarter), below our current estimate of $10.06 (+18% WY, +28% normalized) and below current consensus of $10.16 (+19% Y/Y, +28% normalized). Coupled with slower Chinese gaming approvals, decelerating gaming/luxury brand growth in China, and implications of a potentially escalating trade tensions, we see China exposure as the biggest near-term risk. However, we believe that many of the App Store blemishes we cite below are more temporary in nature and as a result, continue to believe in the longer-term sustainability of App Store growth, which plays a meaningful role in our bullish Services thesis.China growth continues to decelerate while the US maintains 30%+ growth and Japan accelerates. China remains the single largest revenue generating country for the App Store, producing slightly more than $1B in net revenue in the September quarter and accounting for 29% of total App Store net revenue, slightly lower than the T12M average of 31%. China App Store growth has now decelerated for 8 consecutive This alert is sent from: Andrew Atlas. [email protected] You received this because you requested that you receive content and reports from: APPLE INC. Please contact your FA if you want to unsubscribe from the alerts. Disclosures: Please see the full report for risks, disclosures and other important information. Important disclosures regarding the relationship between the companies that are referenced in Morgan Stanley research and Morgan Stanley Wealth Management research are available on the Morgan Stanley Wealth Management disclosure website at httpslAwiw.morganstanley.comfonlineiresearchdisclosures. Morgan Stanley Wealth Management Not Acting as Municipal Advisor Morgan Stanley Wealth Management is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 15B of the Securities Exchange Act (the "Municipal Advisor Rule") and the opinions or views contained herein are not intended to be. and do not constitute, advice within the meaning of the Municipal Advisor Rule. Copyright The copyright in materials provided by Morgan Stanley is owned by Morgan Stanley & Co. LLC. Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States. 2018 Morgan Stanley Smith Barney LLC. Member SIPC. EFTA01019392 EFTA01019393