Apple's App Store concessions will have negligible financial impact
"But we estimate their financial impact to Apple is negligible at just 1-2% of EPS, at worst."
What you need to know
- Apple has made some changes to its App Store.
- It has recently shifted policies to try and satisfy antitrust complaints and developers.
- A new report says the moves will only cost Apple a tiny portion of its earnings.
A new report says that recent concessions made by Apple regarding its App Store will only cost the company one or two percent of its earnings per share.
As per Philip Elmer-DeWitt, Morgan Stanley's Katy Huberty notes recent changes to Apple's App Store, namely letting developers communicate with their customers regarding alternative payment options outside of the App Store, and impending legislation in South Korea that will prevent it from forcing developers to use its in-app payments system, as well as changes to the way "reader" apps like Netflix and Spotify are treated. Despite these concessions, which some have labeled as fairly minimal, Huberty says Apple needn't worry about its bottom line:
But we estimate their financial impact to Apple is negligible at just 1-2% of EPS, at worst. In our view, the reader app update that settles the JFTC investigation was the most important announcement as it provides app developers a path to circumvent payments on App Store. For context, this business model isn't new as Netflix and Spotify already disabled payments for new subscribers through Apple's App Store billing platform (SPOT since 2016; NFLX since 2018); meaning Apple hasn't been collecting a cut of the economics for new subscribers of either app for at least 3 years
According to Huberty, the biggest change made pertains to these reader apps, but that the top 10 "reader" apps only account for around 8% of Apple's App Store revenue, and that the top 50 only make up 13%. Huberty says that worst-case scenario, Apple could give up revenue from the top 20 reader apps on the store and only lose 4% of its services revenue, which is just 1% of its total revenue, and 2% of its FY22 EPS forecast. Casting a cynical assessment, Huberty concludes:
In other words, we believe the recent App Store headlines are more attention-grabbing than the ultimate financial impact to Apple's revenue or profitability.
Apple continues to be faced with antitrust complaints about some of its App Store policies and practices, criticism it could do without as the company prepares to release a slew of new products including the iPhone 13, which looks set to be its best iPhone ever.