Apple’s search engine deal with Google expected to drive service revenue growth through 2022

Morgan Stanley analyst Katy Huberty today raised her services-related revenue forecast for Apple through fiscal year 2022.

In a research note shared with MacRumors, Huberty said increased licensing revenue is the primary driver of high estimates, including an acceleration in search traffic payments Apple receives from Google. The New York Times last year reported that Apple was getting around $8 billion to $12 billion a year in exchange for making Google the default search engine on devices like the iPhone and iPad.

“Following strong App Store results in the March quarter and an analysis of key drivers in Apple’s licensing and other segment, we are increasing our FY21 and FY22 services revenue estimates already above the street of 3% and 5% respectively, and are increasingly convinced that consensus services forecasts for the next 2+ years are too low,” Huberty wrote.

Despite the positive outlook for Apple Services, Huberty lowered his 12-month price target for Apple to $155 from $164 per share.

“However, multiple compression over the past 2 months, primarily among Apple’s higher-growth services peers, has more than offset our higher revenue and earnings estimates, pushing our new price target based on sum of the parts at $156, or 33x FY22 EPS, from $164 prior,” Huberty wrote.

Apple’s service portfolio includes the App Store, Apple Music, Apple TV+, Apple News+, Apple Fitness+, Apple Arcade, iCloud, etc.