Apple stock threatened by growing backlash against App Store revenue cut
Rumblings against Apple's sizable take from App Store revenues could have an impact on the company's stock, given the new focus on Services revenue, an analyst said on Friday.
"While the services segment grew 18 percent in the December quarter, we've now started to get investor questions worrying about whether the App Store will be the next shoe to drop," wrote AB Bernstein's Toni Sacconaghi in a note seen by AppleInsider. Specifically, he cited a series of headlines indicating that Spotify and Netflix have stopped offering in-app subscriptions, and that others like Fortnite developer Epic Games have threatened similar actions.
Apple claims 30 percent from the majority of App Store transactions, which Spotify and others have complained can force them to hike prices or take a major financial hit. For some time Spotify charged $3 extra to in-app Premium subscribers, ultimately deciding to end the discrepancy and direct iPhone and iPad owners to its website.
Apple's revenue cut does shrink to 15 percent for subscriptions over a year long, but this doesn't seem to have appeased developers.
"Unsurprisingly, this 30 percent cut has transformed the App Store into the largest single driver of Apple Services, accounting for about 40 percent of all Services growth in the last three years by our estimates," Sacconaghi continued. "In recent years, however, discontent over this 'Apple tax' has been brewing among several major iOS app developers."
The analyst cited Netflix's action as the trigger for investor concerns. Apple Chief Financial Officer Luca Maestri has argued that Netflix represented "less than 0.3 percent of total services revenue" in 2018.
Sacconaghi also pointed out, however, that an ongoing U.S. case is weighing whether App Store practices constitute a monopoly. The App Store is the only place developers are normally allowed to sell iOS apps, and losing the case could break the company's revenue streams. Developers on macOS, Windows, and Android are free to use third-party storefronts or their own.
However, Sacconaghi doesn't seem to put any weight on any services that Apple will debut in the future, such as the expected video streaming service. Nor, does he seem to note that Services is more than the App Store, as Apple Music, AppleCare, and iCloud are all part of the revenue stream as well.
"While the services segment grew 18 percent in the December quarter, we've now started to get investor questions worrying about whether the App Store will be the next shoe to drop," wrote AB Bernstein's Toni Sacconaghi in a note seen by AppleInsider. Specifically, he cited a series of headlines indicating that Spotify and Netflix have stopped offering in-app subscriptions, and that others like Fortnite developer Epic Games have threatened similar actions.
Apple claims 30 percent from the majority of App Store transactions, which Spotify and others have complained can force them to hike prices or take a major financial hit. For some time Spotify charged $3 extra to in-app Premium subscribers, ultimately deciding to end the discrepancy and direct iPhone and iPad owners to its website.
Apple's revenue cut does shrink to 15 percent for subscriptions over a year long, but this doesn't seem to have appeased developers.
"Unsurprisingly, this 30 percent cut has transformed the App Store into the largest single driver of Apple Services, accounting for about 40 percent of all Services growth in the last three years by our estimates," Sacconaghi continued. "In recent years, however, discontent over this 'Apple tax' has been brewing among several major iOS app developers."
The analyst cited Netflix's action as the trigger for investor concerns. Apple Chief Financial Officer Luca Maestri has argued that Netflix represented "less than 0.3 percent of total services revenue" in 2018.
Sacconaghi also pointed out, however, that an ongoing U.S. case is weighing whether App Store practices constitute a monopoly. The App Store is the only place developers are normally allowed to sell iOS apps, and losing the case could break the company's revenue streams. Developers on macOS, Windows, and Android are free to use third-party storefronts or their own.
However, Sacconaghi doesn't seem to put any weight on any services that Apple will debut in the future, such as the expected video streaming service. Nor, does he seem to note that Services is more than the App Store, as Apple Music, AppleCare, and iCloud are all part of the revenue stream as well.
Comments
However, while I think the 30% for apps could be debated, I've never understood the 30% for subscriptions. The AppStore hosted the app, it has nothing to do with Spotify's servers or Microsoft's Office365 servers. I've always been uncomfortable with Apple getting a cut of an external subscription service revenue just because they hosted the app.
But the most important thing is the the amount of business done through Apps where Apple has no cut is more than 10x the App Revenue - ride sharing, nearly all fintech, travel sites, etc.
Calling App Store a monopoly is a tough case.
And besides, this article is about Apple getting or not getting a share of the revenue from Netflix, not about Apple's own (rumored, future) offering in that space.
FWIW if Apple were a consignment shop they would claim the entire sale, and record the portion paid out to the consignee as a business expense AFAIK. I don't believe Apple does the same with the App Store accounting-wise but I don't know for certain. If they do then it seems to me it would be proof enough of standing for SCOTUS to allow the lawsuit to proceed. Even if they don't I think that's going to be the decision anyway. That doesn't mean the plaintiffs will win their class-action case tho.
This is a completely misleading, and meme-supporting, title. There is zero proof that AAPL is “threatened” by this presumed “growing backlash”. It makes about as much sense as taking Apple to court for charging such a high price for it’s products!
This is someone’s opinion, and it sbould be identified as such in the title - unless Appleinsider has at last succumbed to it’s industry’s proclivity for click-bait, which I sincerely hope is not the case.