Apple's services growth engine sputtered as court-ordered App Store changes ate into its biggest cash cow

Apple's Services Revenue Misses Target as Court-Ordered App Store Changes Surface in Earnings

Apple just posted its strongest June quarter ever. The CFO blamed a shortfall in services revenue partly on court-ordered changes to the App Store.

Apple reported $30.74 billion in services revenue for its fiscal third quarter, short of the $31.22 billion Wall Street analysts expected 1. Total company revenue reached $109.4 billion, up 16 percent year over year, with diluted earnings per share of $2.02, up 29 percent 2.

The services segment covers the App Store, AppleCare, Apple Music, Apple TV, cloud services, and Apple's growing advertising business. It is the part of the company that carries the growth narrative investors have priced into Apple's valuation as hardware sales have flattened. When services misses, the market listens. Apple's stock fell more than 4 percent in after-hours trading, a drop TechCrunch attributed to both the services shortfall and weaker results in China 1.

What drove the miss

CFO Kevan Parekh attributed the shortfall to several factors. The company pointed to a slowdown in mobile gaming and to App Store business model changes in certain countries, including the U.S. 1. A tougher comparison played a role as well: prior quarters benefited from revenue tied to the theatrical release of the F1 movie 1.

The App Store reference is the one with structural weight. Those business model changes stem from a court order requiring Apple to let app developers process customer payments outside the App Store and outside the reach of Apple's commission 1. Apple did not quantify how much revenue the payment changes have cost 1. The company told investors the matter will be heard by the Supreme Court for a final decision 1.

The pivot underneath

Apple is building replacement revenue streams while the commission model faces legal pressure.

The company says it has surpassed 1.5 billion paid subscriptions, up from 1 billion in January 2025 1. Both transacting and paid accounts reached all-time highs, with double-digit growth in emerging markets 1.

Apple Ads have become a more significant part of the business and recently expanded into Apple Maps 1. That expansion matters when read alongside the App Store's own numbers: Apple says the App Store set a June quarter revenue record, but that figure includes ad revenue alongside commission income 1. The App Store's headline growth now reflects two businesses moving in different directions, reported together.

Apple also pointed to newer revenue sources: Creator Studio subscriptions, a bill-splitting feature in Apple Cash, and the Apple Upgrade program launched this week in partnership with Klarna 1. Apple TV viewership reached an all-time high in the quarter, while cloud and payment services also hit all-time highs 1.

What investors are weighing

The tension is visible in the earnings call itself. A CFO publicly naming court-ordered payment changes as a factor in a revenue miss puts the legal battle over Apple's commission model squarely in the financial discussion, not just the legal one. Apple is responding by growing advertising, deepening subscriptions, and adding financial services to its bundle. Those businesses carry different economics than a structural cut of every in-app transaction.

Apple did not say when the Supreme Court will hear the case. Until it does, each quarterly services number becomes a running measure of how much the commission model has already eroded and how quickly the replacement revenue can close the gap.