Apple's Changing How App Creators Are Rewarded, And It Should Help Both Sides

Apple Inc. AAPL has plans to revamp its App Store, introducing paid search ads, a new subscription model, and faster approvals. Credit Suisse’s Kulbinder Garcha reiterated an Outperform rating for the company, with a price target of $150. The analyst commented that the plans would benefit both Apple and app developers.

Apple's business is shifting from hardware to services. Analyst Kulbinder Garcha believes Apple would be able to sustain FCF generation of ~$67bn in the long term, backed by “high retention rates, a superior ecosystem, and a multi-product compute advantage.”

Higher Subscriptions Mean More Recurring Revenue

Apple plans to revamp its revenue-sharing model for apps to allow developers to sell subscriptions. “We believe that the shift to a subscription-based model should result in a stronger sustainable recurring revenue stream from the App Store which we note is highly GM accretive at ~87% at the net level and should accelerate growth going forward,” Garcha wrote.

Paid Search Ads To Boost App Store's Success

Apple intends to have a single paid ad at the top of search results in the App Store. The paid search ads would be initially launched only in the US. “Given Apple's App Store generates ~2x's as much revenue as Google's Play Store and 65% of app downloads are driven by search, we believe this could represent a significant opportunity for both Apple and its app developers,” Garcha commented.