Excerpts from the notes I've seen. More as they come in.
Katy Huberty, Morgan Stanley: Lower App Store Commission Rates Immaterial to Apple. According to the latest data from Sensor Tower, the top 1,500 developers on the App Store have generated 91.7% of revenue, or $40.3 billion in post-commission earnings YTD through November 15th (i.e. revenue the developer collects after paying Apple's take rate) compared to a total $43.9 billion that all 23 million+ developers have generated over the same time period... Implying an immaterial impact to Apple financial results from the lower commission rate. A 50% cut to the commission rate for small developers that generate about 5% of App Store revenue translates to a 20bps revenue and $0.03 EPS impact to FY21 results. Overweight. $136.
Rod Hall, Goldman Sachs: Reduces App Store fees for small developers; we estimate minimal financial impact. In our opinion questions surrounding the fairness of App Store charges are two-sided. On the one hand we can see why larger App Developers want a way to avoid paying Apple’s 30%/15% fees. However, Apple does incur cost to host apps, continuously improve its Xcode development suite, and evolve the rich set of APIs that developers can leverage among other things. It seems reasonable to us that Apple would be able to charge something for all of this to developers who are leveraging Apple’s platform. Should Apple eventually address the question of off portal charging more broadly we would expect that to come along with some sort of plan by which those charging outside of the App Store for their apps would pay for some of the services we mention above. Sell. $75.
Samik Chatterjee, J.P. Morgan: Impact of App Store Fee Changes to Be Limited by SMB Focus, Although Investors Might Look to Price In Broader EPS Risk. Apple noted that the new program will benefit a vast majority of developers who sell goods and services on the App Store, although it did not provide a percentage. While the program does cover a majority of developers, we believe it would mark a much smaller percentage of the App Store revenue drivers given the benefit will accrue to small businesses and individual developers rather than platforms. The details disclosed till now relative to the qualification criteria for developers to this program over multiple years indicate that the 15% rate is likely to be a permanent one for smaller businesses going forward. The lower rate from Apple for small businesses and individual developers will likely lead to investors looking to price in the earnings risk around an eventual moderation of rates for the entire developer community. As highlighted in our recent report in which we discussed the sensitivity of earnings to App store commissions (see here), we estimate every 5% reduction in the commission rate would result in a headwind of $2.7 bn to revenue and 3% to EPS. Overweight. $150.
Amit Daryanani, Evercore ISI: Will Lowering App Store Commission Hit the Bottom Line? The move comes after Apple has faced criticism and lawsuits over how it runs its App Store, so the lower commission for small businesses is certainly positive from an optics perspective. Looking at the bottom line, we do not see much impact here given the small apps are not very material to the App Store revenue base. We estimate publishers earning over $1M accounted for over 90% of App Store revenue in 2019, so lower commission should only hit a very small portion of the revenue base... The $350M headwind would be ~0.7% of services revenue (0.1% of total revenue) and the EPS hit would not even be a full cent. Net/net: The move is a positive in terms of optics as the program is specifically designed to support small businesses, which will make a good sound bite the next time Tim Cook is brought in front of Congress or in a court room. Impact to financials is likely immaterial. Outperform. $135.
Gene Munster, Loup Ventures: Apple's Game of App Store Chess. Based on our belief that regulators were not going to force changes across app store take rates, we believe Apple's motivation for the take rate reduction was to build consumer goodwill by cutting a break to smaller developers. This opens Apple up to accusations of unfair treatment from large developers, something Epic Games and Spotify have already done. Epic CEO Tim Sweeney said that Apple "is hoping to remove enough critics that they can get away with their blockade on competition," and Spotify called the App Store policies "arbitrary and capricious." Our thesis could go wrong if regulators surprise us and begin treating app stores as utilities. Undoubtedly, app stores are a more important part of our lives today than they were five years ago and will play an increasing role in our lives in the decades to come. That said, we see a measurable gap between consumers' future dependence on app stores, and consumers' dependence on current regulated utilities that provide for our most basic needs, such as heat, electricity, transportation, and water. If we're wrong, and app stores are further regulated, we believe this would open a regulatory pandora's box related to basic retail markups, a slippery slope that regulators will likely want to avoid.
Neil Cybart, Above Avalon: Apple Unveils App Store Small Business Program. This is an interesting move from Apple that wasn’t expected. On the surface, the move may appear to be quite significant for the App Store business model but as we will discuss shortly the financial impact from the move will likely be minimal. Apple may actually earn more goodwill from the move than the cost of the program. That shouldn’t take anything away from the announcement in terms of its potential impact on small business owners. Some people will look at this news and connect Apple’s decision to extend an olive branch to small business owners with wanting to please regulators around the world coming down on the App Store. That’s a logical connection to make. However, there is likely more to this announcement than Apple trying to please regulators, who probably will turn this new program against Apple and claim that all developers should pay 15%. To be clear, very few App Store critics are going to look at this new program in a positive light. These individuals and companies want to burn the App Store to the ground. These entities use disagreement over App Store revenue percentages to hide their true ambitions. They aren't interested in helping independent iOS developers find sustainability.
Ben Thompson, Stratechery: Apple Reduces App Store Fees for Small Developers. Not to be the resident App Store grinch, but there is a lot less here than meets the eye. There are two clear winners from this announcement: Apple, who I will get to in a moment, and small developers who develop only for Apple platforms. Those are the folks that most directly benefit from Apple’s tight control of the App Store and who rightly see Apple’s payment mechanism as a huge boon to their business. Now they get a 50% decrease in their marginal costs, if they apply for it, although that decrease goes away if they exceed $1 million in revenue/year (at which point they need to apply again). It’s all a bit of a headache, but given the fact their businesses are centered around Apple’s platforms, it’s all-in-all a pretty good deal. It’s less meaningful for small developers who are cross-platform. Make no mistake, the shift from 30% to 15% on iOS will be nice for the top-line, but the true cost for small teams comes from the costs in time and effort needed to support multiple payment platforms across iOS, Android, and the web; what would really spur innovation in this space would be the freedom to outsource all of an app’s financial components to a service like Stripe, but that simply isn’t possible as long as the iOS bits have to go through Apple’s offerings.
See also: Apple caves on App Store rates