Sub Club by RevenueCat · 2023-09-20

Building the Berkshire Hathaway of Consumer Subscriptions — Eric Crowley, GP Bullhound

GP Bullhound banker Eric Crowley walks through his annual consumer subscription software (CSS) report with David Barnard and Jacob Eiting: App Store revenue near $95B (vs $46B in 2019), ~1B app store subscriptions, regulatory pressure on fees, the case for app roll-ups ('Berkshire Hathaway of apps') and debt limits for buying apps (2-3x EBITDA, $3-5M profit minimum), B2C apps extending into B2B, the content-commerce-community thesis, and open categories like femtech, family management, youth sports and wealth advice.

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5 tactics

Bending Spoons · B2C · Italian app holding company

Borrow $600M from banks to buy famous apps that have been neglected

Bought Evernote for a rumored $100M+; results not discussed

Bending Spoons raised about $600M of debt from Italian banks, then bought Evernote, a well-known US app that was a good business but 'left by the wayside'. Part of a roll-up approach: centralize back-office services (marketing, content, finance) across owned apps.

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Sub Club by RevenueCat · 2023-09-20

Practitioner pattern · Eric Crowley (GP Bullhound sells and raises capital for consumer subscription businesses and profiles companies in its report)

Borrow no more than 2-3 times yearly profit to buy a subscription app

Lenders need $3-5M profit first; banker's rule from deals, no outcomes given

Debt for buying consumer subscription apps is available but harder than for B2B SaaS. A lender will look once the app has roughly $3-5M of profit. Take 2-3x EBITDA of leverage versus the 4-5x common in SaaS, because consumer apps have lower guaranteed cash flow: ~70% first-year annual retention is really good, vs ~90% gross retention for strong B2B SaaS.

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Sub Club by RevenueCat · 2023-09-20

Palta · B2C · health and fitness app studio

Own several apps in one category and sell them as a bundle

Palta bundles all its health and fitness apps together. Match Group owns dating apps covering every audience and bundles dating. Guest's point: bundling only works when you truly own the apps, a reason to roll them up.

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Sub Club by RevenueCat · 2023-09-20

Lynda.com · online video courses

Sell the same consumer courses to companies using the buyer's sales team

Lynda.com sold courses to individuals. After LinkedIn bought it, LinkedIn's sales force, already selling recruiting services to businesses, sold the same courses to companies to help employees get better. Same product and use case, different sales force.

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Sub Club by RevenueCat · 2023-09-20

Photoroom · product photo editing app

Sell your app's core tech to businesses as an API

Cohost credits business users for its stickiness; no numbers

Photoroom sells an App Store subscription to prosumers such as Shopify sellers using it for business, then opened up its tooling as an API sold in a fully B2B motion.

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Sub Club by RevenueCat · 2023-09-20

Numbers mentioned

Who	Metric	Value	Context	When
Apple	revenue	USD 95,000M/year estimate	App Store / Apple services revenue (Apple's commission plus its own services, not gross billings)	2:22
Apple	revenue	USD 46,000M/year approximate	Same App Store revenue measure in 2019; nearly doubled since	3:25
Apple	margin	20–30% estimate	Rumored App Store profit margin, implying $20-30B profit	3:05
Apple	rank	450 approximate	App Store gross revenue vs Fortune 500 companies	1:37
marketEstimated gross billings through the App Store	gmv	USD 1,100,000M/year estimate	Estimate cited from the GP Bullhound report	5:30
marketApps on the Apple App Store and Google Play combined	count	6M apps approximate		3:25
marketSubscriptions billed through the app stores	paying users	1,000M subscriptions approximate	Close to a billion subscriptions; many people have several	3:25
marketiPhone installed base	growth rate	20%/year approximate	Roughly 20% a year; installed base more than doubled since 2017	4:37
aggregateSMB-level consumer subscription app businesses	revenue	USD 10M–20M/year approximate	Many all-digital, very profitable apps at this revenue level	11:18
MyFitnessPal	profit	millions in profit approximate		11:18
benchmarkMinimum profit for a consumer subscription app to attract acquisition debt lenders	profit	USD 3M–5M/year approximate		24:17
benchmarkRecommended acquisition debt leverage for consumer subscription apps	debt	2–3 x EBITDA approximate	Debt as a multiple of EBITDA	24:42
benchmarkReally good first-year annual retention for a consumer subscription app	retention	70% approximate	First-year annual plan retention	25:01
Bending Spoons	debt	USD 600M approximate	Borrowed from Italian banks, used for acquisitions including Evernote	26:37
Evernote	exit price	USD 100M estimate		26:37
PlayOn	exit price	USD 800M approximate	Sold to KKR	49:15
GP Bullhound	share	80% approximate	Share of companies profiled in GP Bullhound's annual CSS report (since 2019) that have since raised or sold	48:57
GP Bullhound	exit price	10M approximate	Approximate exit size where engaging GP Bullhound starts to make sense	51:38
marketFemale health journey from pre-pregnancy through pregnancy to baby	ltv	36 months illustrative	Owning all three stages stretches customer lifetime from one purchase to about 3 years	39:10
benchmarkPer-seat price for the same software sold to businesses vs consumers	price	10 x illustrative	Businesses may need to be charged ~10x the consumer price per seat for the same product	33:12
personJacob Eiting's own mobile checkout behavior with Apple Pay	conversion rate	2 x illustrative	Self-estimate: about twice as likely to buy on mobile when Apple Pay is available	9:39
marketShare of marriages ending in divorce, sizing co-parenting apps like TalkingParents	share	50% approximate		50:03