Good News/Bad News for AAPL from Wall Street
Happy: No Worries Around App Store Moves
04 APRIL 2022 - Which do you want first - the good news or the bad news around Apple shares and Wall Street? Let’s do the good first. It comes from Morgan Stanley analyst Erik Woodring. Apple 3.0 had a look at a note he wrote, wherein he argues that Apple’s recent change regarding “reader” apps won’t mean that big a hit for the Cupertino-company. We heard last week that Apple would start allowing apps that are mostly designed to access books, music, video, and other digital content to link to outside websites for account creation and management. In other words, the Netflix app could have a link to netflix.com to let iPhone users sign up, cutting Apple out of its 30% or 15% commission.
No big deal, says Woodring. Quoting his note:
…the top 10 App Store reader apps make up less than 8% of total App Store revenue (Exhibit 1), while the top 20 account for 10% and top 50 account for 13% of App Store revenue. This suggests that in a worst case scenario where all reader app consumers circumvent App Store payments altogether, which we see as highly unlikely, the impact would be limited to 1-2% of EPS.
And he’s got numbers to back up his doubt in the “worst case scenario.” In a survey run by his firm late last year “only 18% of US consumers and 38% of Chinese consumers” listed themselves as “extremely likely” to go outside the App Store to pay for subscriptions.
As for the dating game going on between Apple and regulators in the Netherlands, between the lack of conclusion in the case and Apple’s plan to charge a 27% commission on sales made outside the App Store instead of the usual 30% - sounds like “sound and fury” to the analyst. Quoting Woodring’s note from late last week:
…we don't believe investors should look at this week's App Store headlines as representing a seismic shift in strategy for Apple, nor do we expect them to have a material impact on App Store take rates…
JP Morgan Stanley Livingston Taylor Swift
So says Morgan Stanley analyst Erik Woodring. Or maybe it was JP Morgan analyst Samik Chatterjee. Apple Insider ran a piece with those exact same numbers and even a couple of duplicate quotes giving Chatterjee the credit. But Apple 3.0 did a cut and paste of Woodring’s note, so… I think Apple Insider did something that I’ve nearly done a million times - confused Morgan Stanley with JP Morgan and wrote up the wrong thing. Where it gets confusing though - while Woodring is a Morgan Stanley analyst, he’s not the one who usually covers Apple for the firm. Normally that’s Katy Huberty. She’s given Apple shares a “Buy” rating and a price target of $210.
Sad: Worries Around Consumer Spending
The bad news for Apple definitely comes from JP Morgan analyst Samik Chatterjee. Really. Barron’s (via Apple News) says the Chatterbox has removed ticker symbol AAPL from his firm’s “Focus List.” That’s not about Apple, though. It’s about, what Barron’s calls, “moderation in consumer spending…” Higher prices for food and fuel might crimp spending on iPhones and AirPods, it seems. That thinking is inline with comments last week from TSMC Chairman Mark Liu, though his concern was centered on “geopolitical uncertainties and new COVID-related lockdowns in China…”
The 20th century had the “roaring 20s.” The 21st gets the “screaming 20s,” when there is always something to freak you the freak out. Quoting Barron’s:
…Chatterjee said the moderation in consumer spending will do two things: It will temper “expectations for upside from the recent iPhone SE launch” and limit the benefit in the Services segment as gaming engagement in China moderates materially both from the pullback in consumer spending and tough comparisons to previous quarters. These reasons led him to remove the stock from the firms’ Analyst Focus List, a designation reserved for what the firm deems attractive purchases.
Not that Apple’s not still attractive to the analyst. Despite consumer spending concerns, Chatterjee maintains a “buy” rating on Apple shares. His 12-month price target on the shares is $210.
