Apple Services Growth Balances App Store Headwinds Amid Regulatory Shifts

Apple's Services division continues to prove its core strength, delivering $26.3 billion in revenue during Q4 2024. This performance contributed to a healthy $100 billion annual run rate for the segment, reflecting steady growth momentum. Crucially, Services operates with remarkably high 74% gross margins, underscoring its profitability and contribution to overall corporate resilience. Expansion of offerings like Apple Arcade, Fitness+, and global Tap to Pay adoption have been key drivers of engagement and revenue growth.

The segment's ability to scale is evident, crossing $100 billion in annual revenue. This growth is increasingly fueled by cross-selling through bundles like Apple One and features like Tap to Pay, which deepen user engagement across Apple's ecosystem. CEO Tim Cook highlighted rising customer engagement across regions as a positive indicator. However, the growth trajectory is maturing. While still growing double-digits YoY, the pace has slowed compared to the segment's historical expansion between 2016-2021. This deceleration signals the challenge of sustaining high growth rates at such a large base.

Furthermore, regulatory pressures-specifically antitrust rulings mandating App Store link flexibility-pose potential headwinds that could impact future revenue streams, though Apple has avoided direct comments on their immediate financial impact. Despite hitting 1 billion paid subscriptions and 2.2 billion active devices, the reliance on existing users and the risk of market saturation remain significant constraints on future scaling potential. Management anticipates growth will remain stable in coming quarters rather than explosive.

App Store Deceleration: Regulatory Pressures Reshape Revenue Trajectory

Apple's App Store growth slowed sharply in late 2025, dampening its revenue momentum. Growth in developer billings fell to 6% year-over-year in November 2025, down from 12% in July, largely due to new EU competition rules that allow third-party app stores and reduce Apple's developer fees under revised programs. This regulatory pressure is forcing immediate operational changes. A recent U.S. court ruling now blocks Apple from collecting commissions on any external app purchases, compelling the company to overhaul its payment systems and triggering an appeal over revenue implications.

The regulatory headwinds are significant but not absolute. Crucially, over 90% of U.S. transactions still involve no Apple commission, meaning the core commission-based revenue stream remains substantial despite the slowdown. In 2024, the U.S. App Store alone generated $10.1 billion in commissions from developers, doubling since 2020, while global App Store billings reached $91.3 billion, yielding over $27 billion in commissions globally. These figures underscore the platform's scale even as rules change.

However, the path forward faces real friction. The court ruling's requirement to abandon commission collection on external purchases fundamentally challenges Apple's established revenue model. While the company argues the decision harms its ability to fund platform innovation, the regulatory and legal battles create near-term uncertainty. Goldman Sachs' unchanged $320 price target for Apple reflects confidence in broader Services growth from iCloud+, Apple Music, and payments-but acknowledges the App Store's vulnerability to accelerating regulatory pressure. The 6% YoY slowdown remains a clear warning, even as the majority of non-commissioned transactions provide a partial buffer.

Services Growth Offsetting App Store Weakness

Apple's broader Services segment continues to demonstrate resilience, with its revenue reaching a $100 billion annual run rate in Q3 2024, driven by subscriptions and payment services. This translates to 12% year-over-year growth for the segment, though the pace has slowed compared to the 27% expansion seen between 2016 and 2021. This performance is partially offsetting weaker results in the App Store, where growth halved to 6% YoY by November 2025 due to new EU regulations. Services revenue benefits from high 74% gross margins but faces challenges like market saturation and reliance on existing users.

Regulatory compliance costs are emerging as a significant headwind. Implementing new rules under the EU's Digital Markets Act requires changes to iOS, Safari, and the App Store, introducing security risks like malware and fraud. Apple must implement safeguards, potentially pressuring margins in 2025 as compliance costs mount amid the rollout of alternative app distribution and payment options for EU users. While the company emphasizes user security during this transition, the residual threats and operational adjustments could erode the segment's historically strong profitability.

Despite near-term App Store softness and regulatory pressures, the Services segment remains a core growth engine for Apple. Goldman Sachs maintains an $320 price target on the stock, citing the segment's resilience and expected strong performance from iCloud+, Apple Music, Apple Pay, and AppleCare+ as key drivers. The segment's ability to sustain growth, even as its highest-profile component faces friction, underpins analyst confidence and suggests long-term momentum remains intact, though near-term margin pressure warrants monitoring.

Long-Term Growth Sustainability: Regulatory Risks and Upside Paths

Building on earlier discussions of the U.S. court rulings that now block Apple from collecting commissions on external app purchases, which have already cost the company $10.1 billion in U.S. commissions in 2024, Apple's App Store generated $91.3 billion in global billings in 2024, up from $61.5 billion in 2022, producing $27.39 billion in commissions. Potential regulatory fragmentation across the U.S., EU, and China could further increase compliance costs and limit platform flexibility.

Apple's App Store facilitated $1.3 trillion in developer billings and sales in 2024, driven by $1 trillion in physical goods (food delivery, groceries) and $131 billion in digital goods, with $150 billion in in-app advertising fueling growth. Regional expansion in the U.S., China, and Europe, along with AI-powered app adoption, has helped accelerate commerce.

Apple's services revenue reached $25 billion in Q3 2024, a $100 billion annual run-rate with 12 % year‑over‑year growth, and the segment enjoys 74 % gross margins. However, growth has slowed from the 27 % average expansion seen between 2016 and 2021, reflecting market saturation and reliance on existing users.

The immediate $10.1 billion commission hit from the court ruling offsets near‑term services revenue, but the $1.3 trillion commerce pipeline and $150 billion advertising engine represent a larger, longer‑term growth runway. Regulatory fragmentation across jurisdictions could increase compliance costs, while services growth faces market saturation and reliance on existing users, which may limit further scaling. AI-powered app adoption, while a tailwind, also raises privacy and data‑regulation concerns that could further constrain platform flexibility.

Overall, Apple's App Store faces near‑term regulatory headwinds that could erode commission revenue, but the platform's global commerce pipeline, high‑gross‑margin services, and AI‑driven scalability provide a solid foundation for long-term growth, provided the company navigates regulatory fragmentation and market saturation.