Seth

How Much Will the App Store Contribute to Apple’s Bottom Line?

To the second comment – if you apply the formula as you’re suggesting it effectively assumes that the revenue sharing distributions (iTunes and App Store) are incorporated into the 14% Net Margin, that is, it reflects Apple’s earnings after sharing revenue and trimming off expenses. We can argue that is flawed:

14% is a number derived from company-wide results and the bulk of Apple’s revenue is generated from product sales that don’t have a comparable rev-share component. It’s not like they’re sharing 60% of MacBook or iPod product revenue with partners.

I chose to apply the margin rate to just Apple’s share (30% of Net Sales) because it yields a more conservative result which takes the revenue sharing component explicitly into account. Is it right? Maybe, maybe not. It’s acknowledged in the article that “using a Net Margin percentage taken as an average from the entire business can’t possibly reflect the differences in the different divisions. 14% works for the sake of putting something together but it’s a guess that could be off in either direction.”

As for the value of including the iTunes calculations - the original title of the article on my own site was “Modeling iTunes AND App Store EPS potential.”