Apple has acknowledged that regulatory changes to the App Store are starting to affect its Services growth. During the company’s fiscal third-quarter earnings call, CFO Kevan Parekh said the App Store faced several headwinds, including new legal and regulatory requirements in the United States and other countries. The comments mark one of Apple’s most direct acknowledgments that its long-running App Store business model is under pressure from courts and lawmakers.

A record June quarter, but with cracks

Apple reported $30.7 billion in Services revenue for the quarter ended in June, a record for a third fiscal quarter. The figure represented a 12% year-over-year increase, but it was also a sequential decline from the previous quarter’s $30.98 billion. According to Apple, that marked the first time Services revenue has fallen on a sequential basis since 2022.

The growth rate also appeared less impressive when placed in context. It was Apple’s slowest Services growth since the second quarter of 2025 and the weakest third-quarter growth rate since 2023. Parekh attributed part of the slowdown to “some factors that impacted the performance of the App Store,” which remains one of the largest contributors to Apple’s Services segment.

Although Apple does not break out App Store revenue separately, third-party estimates have long suggested that the App Store accounts for roughly one-third of all Services revenue. In addition, evidence presented during the Epic Games v. Apple trial showed that gaming apps alone generate about 70% of App Store revenue. That means even small shifts in the mobile gaming market or in how games are distributed and monetized can have an outsized effect on Apple’s overall Services results.

What is changing in the App Store model

Parekh cited several specific factors behind the App Store’s performance. “We also had some factors that impacted the performance of the App Store,” he said. “We did see some headwinds in mobile gaming. And keep in mind, we also made some changes to the App Store business model in certain countries. And in the US, we do continue to operate under a court ruling impacting the link-out transactions. But we’re pleased the Supreme Court will hear our appeal. Despite this, the App Store set a June-quarter revenue record.”

The “changes in certain countries” are not minor. Over the past year, Apple has been required to comply with new rules in the European Union, Japan, and Brazil that allow alternative app distribution, alternative payment methods, and out-of-app purchase offers. In the European Union, the Digital Markets Act forced Apple to allow developers to distribute iOS apps through alternative app stores and to use third-party payment providers. In Japan, Apple agreed to changes that let developers include links to outside payment methods in certain apps. Brazil has also enacted rules that give developers more flexibility to steer users to external purchase options.

These changes have created a more complex App Store ecosystem. Developers now have more choices, and some have chosen to avoid Apple’s commission by directing users to web-based purchases. While Apple still charges fees in some cases, the revenue associated with those transactions is often lower or structured differently. The long-term financial impact is still being studied by analysts, but Parekh’s comments indicate that the effects are already visible in Apple’s numbers.

In the United States, the situation is tied directly to Apple’s long-running legal battle with Epic Games. After a federal judge ruled that Apple’s anti-steering provisions violated California’s unfair competition law, Apple was ordered to allow developers to include links and buttons that direct customers to external payment options. That injunction did not explicitly forbid Apple from charging a commission on purchases made through those external links.

Apple initially continued to charge a commission for digital purchases initiated through link-outs, but the district court later found that Apple’s conduct could place it in civil contempt. For now, Apple is temporarily barred from charging any commission on purchases made through external links in the US. The Supreme Court has agreed to hear Apple’s appeal on the contempt issue, while the lower court continues to consider what commission, if any, Apple should be allowed to charge on such transactions.

The uncertainty around link-outs creates a difficult planning environment for Apple. If the Supreme Court rules in Apple’s favor, the company might be able to collect a commission on external purchases again. If not, developers may have a strong incentive to move transactions off the App Store entirely, reducing Apple’s revenue from its most lucrative segment.

F1 movie made the comparison harder

Apple was careful to point out that not all of the Services slowdown was tied to regulation. Parekh noted that the year-over-year comparison was affected by the success of “F1 The Movie” in the prior-year quarter. The film, a high-grossing sports drama, was released in theaters during the same period a year ago and contributed to Apple’s Services revenue through licensing and related arrangements.

“We [had] the theatrical release of F1, which is one of the highest-grossing, you know, sports films in history,” Parekh said. “And this year, we didn’t have a theater release. So that had a favorable impact on both the June quarter, and also the September quarter in the year ago.”

That context matters because it suggests that Apple’s Services slowdown is not purely a reflection of regulatory pressure. The success of F1 in 2025 lifted the baseline for the June quarter, making the 2026 growth rate look weaker than it otherwise would have been. Still, the mobile gaming headwinds and App Store business model changes are real factors that Apple itself has now acknowledged.

Why App Store regulation has such a big impact

The App Store has been one of Apple’s most profitable businesses. It takes a commission of 15% to 30% on digital goods and services sold through iOS apps. That commission has been challenged by developers and regulators around the world, who argue that Apple’s control over the iOS ecosystem gives it monopoly power.

Apple has argued that its commission is a fair return for the tools, security, distribution, and payment processing it provides to developers. It has also stressed that the App Store creates jobs and provides access to a global audience. But courts and regulators have increasingly taken the position that Apple must allow more competition and consumer choice.

The regulatory changes are not limited to the App Store. Apple has also changed its policies in response to new laws in the United Kingdom and other markets. The ripple effects are being felt across the entire mobile industry. Developers are rethinking whether they need to build apps at all, or whether they should focus on mobile web experiences that are not subject to Apple’s commission.

For investors, the key question is whether Apple can maintain its Services growth in the face of these changes. Services revenue has become a crucial part of Apple’s financial story, especially as hardware sales have matured. If regulatory changes permanently reduce the amount of commission Apple can collect from app developers, the company will need to find other ways to grow the segment.

One possibility is that Apple will lean more on advertising, subscriptions, and entertainment offerings that are not directly tied to the App Store. Apple Music, Apple TV+, iCloud, and other subscription products have become larger parts of the Services mix over time. Yet the App Store still contributes a significant share of total Services revenue, so any decline there is hard to offset.

Apple’s management appears to be aware of the challenge. Parekh emphasized that the App Store still managed to set a June-quarter revenue record despite the headwinds. That suggests the business remains resilient, but the growth rate is clearly lower than it used to be. With the Supreme Court case pending and more regulatory decisions likely in Europe, Asia, and Latin America, the App Store business model will continue to evolve.

Apple’s latest numbers show that regulatory changes are no longer just a theoretical risk. They are beginning to hit the company’s financial results. The question now is how much further the impact will go, and whether Apple can adapt its Services strategy quickly enough to maintain the growth investors have come to expect.

Source: 9to5Mac News