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Back in April, Goldman Sachs analyst Rod Hall backed away from his long-term bearish stance on


shares, raising his rating to Hold from Sell, and conceding that his previous view that iPhone sales would disappoint during the pandemic was “clearly wrong.” He also conceded at the time that both Mac and iPad sales had materially outperformed his forecasts.

But Hall still has some concerns about the outlook for Apple (ticker: AAPL), as reflected in his $140 target price, about $10 below the recent price. For one thing, he thinks Street estimates for next year are simply too high. Hall projects revenue for the September 2021 fiscal year of $371.7 billion, about $5 billion above the Street consensus, and up 35% from fiscal 2020. But he sees fiscal 2022 revenue falling 4% to $356.5 billion, a projection $23 billion below the Street consensus at $379.5 billion.

Hall provided some insights on this thinking in a new research note on Tuesday, with a particular focus on Apple’s ability to drive up average revenue per user. Hall writes that his broad view of Apple has been that stable revenue per user combined with “maximized” global user penetration is likely to result in slowing overall revenue growth, a view reflected in his fiscal 2022 forecast.

But he noted that Covid provided multiple boosts to Apple’s ARPU, which he estimates will increase 21% over the two-year period through the end of 2021. (That reflects his estimate of 19% growth in ARPU in calendar 2021, after 2% growth in 2020.) The impressive growth stems from both surging iPhone, Mac, iPad and Wearables revenue, as well as strong services revenue, due in part to accelerated downloads from the App Store.

But he sees that pattern reversing as spending patterns return to normal over time as the pandemic ebbs.

Hall concedes that it is hard to predict Apple user behavior in the short run. Covid has created some tough comps for Apple, driven by pull-forward in hardware demand, above-average App Store spending and a demonstrated preference for high-end versions of the iPhone and other hardware. He also says investors need to factor in high levels of consumer savings and the increasing value of Apple’s products, as well as more flexible work and study behavior. But he nonetheless thinks that in the long run, Apple will either need to drive up ARPU or accelerate subscriber growth trends to keep revenue growth above GDP growth.

For calendar 2022, Hall sees average revenue per user dropping about 12% on a year-over-year basis – due in large part to an expected moderation of hardware sales. He projects iPhone revenue will fall 12% in 2022, following 37% growth in 2021, with units down 3% and average selling prices down 9%. He sees 2022 revenue declines of 9% in Macs and 8% in iPads. And he sees services revenue growth moderating to 6%, from 24% growth in 2021, with a recovery in ad spending partially offsetting tough comparisons for the App Store.

Hall also makes the case that investors would be better off looking at ARPU trends than trying to discern unit volumes, particularly given the company has not actually provided product unit data since the end of fiscal 2018. He thinks given the lack of hard data on units, “the data sources many investors rely on to forecast Apple’s revenue over time have become less accurate.”

Apple shares are down a few pennies on Tuesday at $149.63, about $2 below their all-time intraday high at $151.68.

Write to Eric J. Savitz at eric.savitz@barrons.com

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