NFLX’s Benefit is AAPL’s Loss

By Andrew Sprague | Equity Research Analyst | January 23, 2019

Netflix recently announced the discontinuation of new, in-app subscriptions through Apple devices, a move aimed at skirting the iTunes billing system. Apple traditionally takes a 30% cut of revenue over the first year for new subscriptions generated from iOS apps. In the years following initial sign on, the figure drops and remains at 15%. Apple’s fast-growing Services segment will likely take a small hit to its bottom-line as consumers are forced to sign up to Netflix—one of the most popular apps on the App Store—directly on its website.

However, Netflix’s impact is just as important as that of Apple’s. Netflix has tried to maintain margin in the face of rapid content expansion, a fact made evident by the company’s recently announced US price hikes. And with companies like Disney soon pulling content from the Netflix platform, margins will come under even greater pressure as more content is created to fill the gap. This analysis will use 1010data TickerView™ Receipt to estimate Netflix’s potential US revenue benefit from its decisions to (1) remove sign up capabilities from its iOS app and (2) raise prices within the US.

Our TickerView™ Receipt data tracks item-level, online purchasing behavior from millions of US consumers, enabling clients to back into a more confident measure of iOS generated Netflix subscriptions. Our dataset implies that 35% of Netflix’s new US subscriptions were initiated via iOS in 2018. If we use a street consensus of 5 million US adds in 2019, Netflix would observe roughly 150,000 monthly streaming adds generated on iOS. Monthly revenue from new, iOS-initiated subscriptions would come in at a little less than $2 million if the recently announced US price hike brings monthly ARPU up to around $13.30. Sidestepping the 30% Apple take-rate and assigning an annual contribution to new subscribers*, Netflix could enjoy a $45 million benefit to its domestic topline. The benefit could potentially increase to $101 million and $128 million in the following years.

For Netflix, US revenue is extremely important, as its contribution to profit is larger than its international counterpart. However, Netflix’s potential benefit also represents Apple’s potential loss—a loss that could increase if others join the likes of Amazon, Spotify, and Netflix in their efforts to bypass Apple’s in-app commissions.

To continue tracking the impact of in-app commissions—or the lack thereof—to companies like Netflix and Apple, reach out to us at equities@1010data.com and learn more about 1010data TickerView™ Receipt.

 

* If an add occurs in January, we count its monthly subscription fee 12 times for the given year. If an add occurs in December, its monthly subscription fee only contributes once toward annual revenue.