To The Moon

TimesSquare Capital Management, an equity investment management company, released its “U.S. Concentrated Growth Strategy” third-quarter investor letter. A copy of the same can be downloaded here. In the third quarter, the strategy returned -0.72% (net), compared to a -3.37% return for the Russell 3000 Growth Index. The energy sector remained relatively strong in the quarter while Real Estate and Consumer Staples especially detracted from performance. In addition, please check the fund’s top five holdings to know its best picks in 2022.

TimesSquare Capital highlighted stocks like Apple Inc. (NASDAQ:AAPL) in the Q3 2022 investor letter. Headquartered in Cupertino, California, Apple Inc. (NASDAQ:AAPL) is a multinational technology company. On December 26, 2022, Apple Inc. (NASDAQ:AAPL) stock closed at $131.86 per share. One-month return of Apple Inc. (NASDAQ:AAPL) was -10.97% and its shares lost 25.20% of their value over the last 52 weeks. Apple Inc. (NASDAQ:AAPL) has a market capitalization of $2.098 trillion.

TimesSquare Capital made the following comment about Apple Inc. (NASDAQ:AAPL) in its Q3 2022 investor letter:

“Apple Inc. (NASDAQ:AAPL) designs and manufactures smartphones, personal computers, tablets, and wearable devices. The company reported better than expected revenues, though that came from a lower-than-expected supply chain impact. Apple called out pockets of weakness in wearables as well as home & accessories. Management referenced macroeconomic uncertainty and sounded somewhat guarded when commenting on fourth quarter expectations. In September, Apple introduced four new iPhones with retail prices kept at last year’s levels. Its shares edged forward by 1% in consideration of these developments. We trimmed the position after evaluating the channel which highlighted some consumer demand choppiness.”

Twitter - Apple Tensions Eased

The reality is that Apple will give Twitter an unprecedented amount of leeway and only pull the app if it violates the App Store’s golden rule: You Must Give Apple 30%.

That commission is a serious problem for Musk. He recently spent $44 billion on Twitter, which he has acknowledged was too much. Musk has made it clear he hopes to fix up Twitter and resell it or take it public within three years. He’s also promised to make Twitter more subscription-centric and add new features and upgrades to improve the bottom line.

But turning Twitter into a full-on subscription business, with the goal of making back his money in three years, is probably next to impossible—especially when you factor in that Apple is going to take 30% of that money off the top before taxes. Making matters worse, Apple has cut back on its advertising spending on Twitter. (Musk said over the weekend that the ad spending has been restored.)

So it’s perhaps no surprise that Musk, a billionaire businessman, went off on Apple this past week. He understands that the iPhone maker is an impediment to his financial goals. And he’s using the idea of free speech to protect himself.

That’s why Tim Cook, Apple’s chief executive officer, needed to step in and calm tensions. The two men met at Apple’s headquarters last week, and Musk said he was told that Apple never contemplated removing the Twitter app—walking back an idea that, to be clear, was suggested by Musk himself.

But the standoff may not be over. If Musk tries to circumvent Apple’s App Store fees, Cook will indeed be in the position of having to decide whether to pull Twitter.

On the surface that sounds like a difficult decision, but there really isn’t a choice: If Twitter puts its own payment system within the app and bypasses Apple’s fees, Cook will need to follow his own rules and remove the app (probably after offering Musk a few days to change his mind).

There are probably plenty of people who might argue that society is better off if Musk’s Twitter is booted from the store given its more hands-off approach to content moderation and suspending accounts. But it’s clear that Cook doesn’t want it to come to this.

It’s not about the money that Apple would lose from Twitter fees, but the risk of a crisis within the larger ecosystem. If Musk publicly flouts Apple’s rules, that will set off a domino effect of other apps looking to do the same. The entire App Store business model could come crashing down.

So Cook needed to calm Musk. The question now is how long the truce may last. No matter what was discussed in their meeting at the Apple Park headquarters in Cupertino, California, it’s unlikely Musk will just quietly accept the 30% fee (a commission the Tesla Inc. magnate has criticized for years).

The good news is there’s a perfectly legal solution (if you consider Apple’s App Store guidelines the law) that will let both companies avoid a crisis—while still allowing Musk to get his full $8 for Twitter Blue subscriptions.

Twitter can build a website to take payments online for the Blue service and other subscriptions and then urge users to sign up for the social network on the web. When users then log in to Twitter on their iPhone or iPad, that subscription will be unlocked without the payment having to be processed through Apple.

That would save Musk the 30%, minus any credit card processing fees. This is legal because of section 3.1.3(b) of the App Store guidelines, known as the Multiplatform Services rule, which says that subscriptions can carry over from other platforms—including the web—so long as they are also available through in-app purchase.

Musk can charge his $8 on the web and then add 30% to that price (making it $10 to $11) for the version through the Twitter app on the iPhone. Then he gets his $8 either way, but it encourages users to use the web method.

The caveat is Musk can’t promote the web payment plan anywhere within the app, so the change may require a marketing push.

By carefully leveraging the App Store rules, Musk could essentially circumvent Apple’s 30% cut and keep his app on the App Store, avoiding a dilemma for both himself and Apple. And I think Cook and Apple would consider that a win too