Gene Munster: What Netflix's exit means for Apple

It hurts a little, but doesn’t sting like Fortnight skipping Google Play.


From a note posted Monday to Loup Ventures subscribers:

Apple as a Service Theme Intact: The news that Netflix is leaving the App Store is somewhat expected, given the company began testing alternatives to the App Store last summer. The move is a fractional negative to earnings, along with a psychological headwind to investors embracing the theme of Apple as a Service. That said, we believe Spotify is the only other brand at risk of leaving, and the Apple as a Service theme is intact…

Netflix and Spotify Leaving App Store Fractional Impact to Model: Services revenue represented 16% ($10.0B) of Apple’s revenue in the Sep-18 quarter, growing at 17%. We estimate apps account for 40% of Services revenue, and 20% of app revenue comes from in-app subscription purchases, of which at most 5% come from Netflix and Spotify. There is a risk that Netflix and Spotify’s brand is strong enough to motivate customers through the additional subscription sign-up steps. If Apple loses their cut of all Netflix and Spotify subscription revenue long-term (not just new subscriptions), it would reduce the overall Services revenue by about 0.4%, and Apple’s overall revenue by 0.07%. This headwind would lower the Services growth rate in 2020 from 15% to 14%.

In-app Purchases: Last spring, Fortnite launched on Android and opted to skip the Google Play store altogether. In other words, Epic Games will capture 100% of revenues from in-app purchases. Fortnite remains in the App Store on iTunes, so Apple receives a 30% cut of all in-app purchases (about $100m from Fortnite over the past 9 months). This is unlikely to change, as the App Store is operated as a walled garden. On the other hand, Android is at risk of developers avoiding the Google Play store, because users can download apps directly from the web to an Android device. Developers like Epic or Supercell, which are well-established and have large marketing budgets, are the most likely candidates to opt out of Google Play.

My take: I’m surprised Apple and Netflix couldn’t come to terms.