As far as Apple (AAPL) fans go, they don’t come much bigger than Warren Buffett. 👴 In the past, Buffett called Apple ‘probably the best business I know in the world’, and has labelled his decision to sell off shares in the company a mistake. Today, Buffett counts Apple as one of Berkshire Hathaway’s ‘Four Giants’, and delivered Berkshire investors a juicy US$785 million in dividends in 2021. So, what’s Apple’s secret sauce? According to Buffett, it’s ‘the value of an ecosystem’ that he reckons gives Apple its shine. 🍎
Apple is great at selling iPhones, which is by far Apple’s largest revenue driver. But the more phones they sell, the more revenue Apple can also earn from their supporting services, like the App Store. And while gross margins for iPhones and iPads were about 35% in 2021, margins for services were a whopping 70%. That’s because Apple commands up to a 30% slice of the pie from in-app purchases of digital goods and services made through their App Store. 🥧 Sure, that’s similar to Google Play and Amazon App Store fees. But geez, OnlyFans only takes a 20 percent cut for themselfie, and it makes New Zealand’s GST look like a comparative bargain at just 15%. According to Visual Capitalist, Apple makes more money via their App Store from gaming than Sony, Nintendo, Microsoft (MSFT) and Activision Blizzard (AVTI) combined!
But cracks could be starting to show in Apple’s app armour. In 2020 when Epic Games tried to bypass Apple’s payment system in their smash game Fortnite (yep, kids still play that), Apple booted Fortnite from their App Store. That set the stage for an epic legal battle royale with Epic - joined by 34 US states - alleging Apple has too much power. Watch this space. 🍿