Merrill Lynch: Matching Google's fee cut would cost Apple's EPS about 3 cents

From a note to clients by analyst Wamsi Mohan that landed on my desktop over the weekend:

Google announced that, going forward, all subscription-based Apps will pay a 15% fee, which is lower than the current 30% fee. Apple already charges a 15% fee for subscription Apps, but from the 2nd year of service. In the first year, the fee is 30%. We estimate a small impact to annual earnings per share (of approx. $0.03) if Apple were to also lower the first year fee for subscription Apps to 15%. Games make up the largest share of App Store revenues and any policy change impacting Gaming Apps could have more impact.

Maintain Neutral rating and $160 price target. 

My take: Water off a duck's back.

2 Comments

  1. Gregg Thurman said:
    Given the hit Google is going to take due to Apple’s opt out feature, it would seem that lowering subscription hosting fees will exacerbate the revenue reduction. That would be terrible.

    3
    October 25, 2021
  2. Robert Paul Leitao said:
    App Store revenue growth is currently driven primarily by games and not content subscriptions. The changes Google announced are much smaller than the big headlines suggest. The revenue cost to Apple from matching Google’s policy change would essentially be immaterial. I expect Apple One and similar subscription services from Apple to be a bigger component of services revenue growth in the future. Apple’s in-house subscription services are based on different revenue models for the content providers and developers.

    2
    October 25, 2021

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