Citi: Apple (AAPL.US) is expected to report a 13% YoY increase in Q3 App Store revenue; EU DMA has little impact on user download behavior

Bank of America analyst Tuesday cited data from Sensor Tower to say that Apple's (AAPL.US) App Store revenue would rise 13% to $7.5 billion in the third quarter, driven by a 32% surge in downloads of the iPhone and iPad. The analyst maintained an "overweight" rating on the stock, with a price target of $230.

Apple does not break out App Store revenue when reporting its services revenue, but analysts and others will provide estimates. Analysts expect Apple's services revenue to rise 14% in the third quarter when the company reports next month.

Sensor Tower data showed that Apple's sales in China rebounded in April after a disappointing start to the year, with App Store revenue up 10% in June. The data also showed that Apple's App Store game revenue is expected to rise to $3.9 billion in the third quarter, up 51% from the year-ago quarter, while Apple News revenue is expected to account for just 1% of App Store revenue but to be the fastest-growing, up 42% year-on-year.

The Digital Markets Act (DMA) in the European Union came into force earlier this year. The law requires Apple to allow European users to use other app stores or to download apps directly from third parties, so that app store developers can bypass the 15% commission Apple takes from developers when users download apps. At the same time, Bank of America analysts said that users' behavior "hasn't changed much", with relatively few people using other app stores.

It is worth noting that last month, the European Union accused Apple of violating DMA rules. The European Commission said in its preliminary findings that Apple failed to allow app store developers to freely advertise payment methods outside of the Apple ecosystem, which violates DMA's anti-monopolistic rules. Margrethe Vestager, head of the EU's antitrust body, said Apple faces "many very serious" issues in terms of DMA compliance, and that Apple's "interoperability fee" does not meet the requirements of DMA.

Under DMA's strict penalty provisions, Apple could face fines of up to 10% of its global annual revenue, potentially hundreds of billions of dollars, if found guilty. Fines could even rise to 20% of global annual revenue if Apple is found to have violated DMA again.

In the face of strict EU regulation and potential billions in fines, Apple said it would delay the launch of certain features in the EU, such as generative AI features like Apple Intelligence, because the company fears that DMA's interoperability requirements could force it to compromise product integrity in a way that jeopardizes user privacy and data security.