EFTA02606691

From: Richard Kahn Sent: Tuesday, January 8, 2019 11:54 PM To: Jeffrey Epstein Subject: Fwd: Apple, Inc.: New Disclosure Re-states Services Growth; App Store Healthy but AppleCare Slows Richard Kahn HBRK Associates =nc. 575 Lexington =venue, 4th Floor New York, NY =0022 tel fax cell Begin forwarded message: From: =/b>"Morgan Stanley" Subject: =/b>Apple, Inc.: New =isclosure Re-states Services Growth; App Store Healthy but AppleCare =lows Date: =/b>January 8, 2019 at 6:01:53 PM =ST To: =/b>. • Reply-To: ../b> . <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> Wealth =anagement <http://www.morganstanley.com/> <http://www.morganstanley.com/img/cs/spacer.gif> Apple, Inc.: New =isclosure Re-states Services Growth; App Store Healthy but AppleCare =lows <http://www.morganstanley.com/img/cs/spacer.gif> EFTA_R1_01797908 EFTA02606691 Katy L. Huberty, CFA =E2 Morgan Stanley January =, 2019 10:58 PM GMT Last week, Apple =re-announced December 2018 quarter results, where they disclosed that =ec Q Services revenue was -$10.8B, representing 28% Y/Y growth as =eported, but 15-22% Y/Y growth after the reclassification of Apple's =Y18 Services revenue to account for how the company now accounts for =he amortization of the deferred value of Maps, Siri and free iCloud =ervices. Today, Apple provided the quarterly disclosure of these =eclassifications, which clarified that December 2018 Services growth =as 18.3% Y/Y. We estimate this represents a 7 point deceleration from =5% Y/Y normalized growth in the September 2018 quarter, or a $600M =hortfall vs. if growth was flat with Sept Q at 25% Y/Y. Importantly, =ecent third-party App Store data from Sensor Tower suggests App Store =rowth only decelerated 1 point in the December quarter, with a stable =rowth rate ex-China, an improving trend from a more meaningful =eceleration in September 2018. Therefore we believe the Services =eceleration this quarter is more temporary in nature and largely =ttributed to AppleCare, which was impacted by the estimated 19% Y/Y =ecline iPhone sales in the Dec Q and could account for as much as $425M =f the shortfall. We continue to view the growing installed base (+8% in =Y18), Services engagement (+14% est. revenue per device in CY18), and =ardware attach (nearly 50% wearables growth in December 2018) as signs =hat Apple's platform value and customer loyalty continue to grow =espite the weaker iPhone product cycle. This alert is sent from: Andrew Atlas, You received this because you requested =hat you receive content and reports from: APPLE =NC. Please contact your FA if you want to unsubscribe from the =lerts. <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> Disclosures: Please see =he full report for risks, disclosures and other important =nformation. Important disclosures regarding the =elationship between the companies that are referenced in Morgan Stanley =esearch and Morgan Stanley Wealth Management research are available on =he Morgan Stanley Wealth Management disclosure website at https://www.morganstanley.com/online/researchdisclosures. Morgan Stanley Wealth Management Not Acting as Municipal =dvisor Morgan Stanley Wealth Management is not acting as a municipal =dvisor to any municipal entity or obligated person within the meaning =f Section 158 of the Securities Exchange Act (the "Municipal Advisor =ule") and the opinions or views contained herein are not intended to =e, and do not constitute, advice within the meaning of the Municipal =dvisor Rule. Copyright 2 EFTA_R1_01797909 EFTA02606692 The =opyright in materials provided by Morgan Stanley is owned by Morgan =tanley & Co. LLC. Morgan Stanley Wealth Management is the trade =ame of Morgan Stanley Smith Barney LLC, a registered broker-dealer in =he United States. © 2019 Morgan Stanley Smith Barney LLC. Member =IPC. <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> chttp://www.morganstanley.com/imecs/spacergif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> 3 EFTA_R1_01797910 EFTA02606693