Apple has cut the standard App Store commission rate in China by 5 percentage points, lowering the take to 25% effective March 15 after discussions with regulators. The change also reduces the commission on certain qualified transactions under the App Store Small Business Program and the Mini Apps Partner Program, as well as auto-renewals after the first year, to 12% from 15%.
Analyst Gary Yu at Morgan Stanley said the rate adjustment should reduce channel fees and lift net profit for a number of major internet platforms. Morgan Stanley quantified the potential impact as an earnings uplift in the range of 0.4% to 1.9% for Tencent, NetEase, Tencent Music Entertainment, Kuaishou and Baidu Zhihuang (BZ).
Yu singled out Bilibili as a company that could see a larger proportional benefit - an estimated 3% to 4% increase in earnings - citing its relatively lower margins compared with peers. The extent to which any company benefits, Morgan Stanley noted, will depend on two primary factors: that company’s net margin and the proportion of its revenue that comes from iOS in-app purchases.
"We think this directly benefits internet companies that rely on in-app purchases, as the fee cut should flow through to the bottom line," Yu wrote, according to Morgan Stanley's note.
The brokerage also flagged a potential follow-on effect: because Apple’s change came after engagement with regulators, Android app stores could consider similar fee moves. Morgan Stanley observed that if Android platforms were to reduce their fees, gaming companies could experience the most upside.
However, the firm cautioned that the upside on Android might be limited in practice because many companies have already developed their own distribution channels on Android. That existing distribution could mute the incremental benefit even if Android stores lowered their fees.
Sector and market implications
- Internet platforms and app-based service providers are the primary beneficiaries, particularly those generating substantial iOS in-app purchase revenue.
- Gaming firms stand to gain materially should Android stores emulate Apple’s cut, though the impact depends on existing Android distribution strategies.
- App store economics and regulatory engagement in China are a focal point for margins and profit flow for digital content providers.