Apple's cut of App Store purchases are the biggest component of its services business, which it's been promoting as its future. Cutting them could cost it dearly.
. Not only has that segment been growing faster than Apple's overall hardware business, it's more profitable too.Michael Loccisano/Getty Images/Spotify
Apple's App Store commissions make up the biggest component of its services business, accounting for about 30% of its total revenue, Kelley estimated. Consumers spent around $47 billion on apps and other items in its store last year, and the iPhone maker pulled in about $12.6 billion in revenue from those sales, Kelley estimated. Both of those figures are about double the comparable ones for Google.
A slight reduction in Apple's App Store rates won't hurt the company very much, Kelley said. If its overall commission rate falls to about 25%, Apple's store revenue next year would be about $1.4 billion less than it would be otherwise, while its earnings per share would be about 20 cents lower, he said. But those hits would represent less than 1% of the company's expected overall revenue next year and only about 1.5% of its expected per-share earnings.
But bigger cuts in its commission rates would lead to much sharper reductions in Apple's expected sales and profits, Kelley said. If its commission rate drops to 20% overall, Apple would take a $5 billion hit to its total sales next year and would see its earnings per share cut by 75 cents, or about 6%, he said. If its fee rate falls to 15%, Apple's overall revenue in 2020 would be cut by 3%, or $8 billion, and its earnings per share would be reduced $1.25, or nearly 10%.
Schachter thinks there's a chance it could fall even further than that, suggesting Apple's commission rate might drop to just 12%. That would cut its earnings before interest and taxes by 15% next year, he said.
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