Apple, Google could still win from App Store loss

Last week’s ruling, in a federal case brought by Epic Games, found that Apple’s policy of preventing alternative payment systems within apps on its devices qualified as “anticompetitive conduct” under California law. The presiding judge ordered Apple to halt the practice, which could in theory eat significantly into the revenue generated by its App Store from the commissions paid on in-app purchases. Google wasn’t involved in the lawsuit, but investors figured the same fate would eventually befall the company’s Google Play store. Apple shares slid 3% while Google-parent Alphabet Inc. fell nearly 2% on Friday following the ruling.

Now Wall Street isn’t so sure. Both stocks regained some ground Monday after several analysts noted both the likely length of time for the ruling to take effect and the ways the two tech titans could offset at least some of the presumed loss. The upshot is that few observers see much near-term risk for the two mobile app stores expected to generate a combined $34.7 billion in revenue this calendar year, according to consensus estimates from Visible Alpha.

Apple has 90 days to implement changes before the ruling takes effect. The company could choose to appeal the decision and seek a stay of the ruling while the matter works through the courts. Apple hasn’t said it would do so: It has focused its public comments so far on the parts of the case where it prevailed, such as the judge’s determination that Apple doesn’t qualify as a legal monopoly. Paul Gallant of Cowen thinks Apple has a strong case for appeal given the trial judge’s “nationwide application of a California state law.”

And if the ruling stands, several analysts expressed doubt that every Apple device user would switch to using different payment methods. Kyle McNealy of Jefferies cited “consumer aversion to entering payment details for a high volume of apps separately,” while Katy Huberty of Morgan Stanley said changes from the ruling “would require consumers to manage disparate accounts across many developers, creating more friction than the current App Store model.” Ms. Huberty estimates that, if Apple were to lose all revenue from the 20 largest app developers globally, the loss would equate to about 2% of revenue and 5% of EPS in Apple’s 2022 fiscal year “in a worst-case scenario.”

And even if developers secure some savings on the commissions that they have to pay on in-app sales, at least some of that would likely be plowed back into user acquisition. That would likely mean a jump in advertising revenue for Apple, and especially Google, which dominates the online advertising market. Stephen Ju of Credit Suisse left his estimates for Google unchanged, writing that increased marketing spending by developers “will likely see Google recapture some lost fees as search/app install revenue.”

The rub is that such resilience on the part of two companies valued at a combined $4.4 trillion could further fuel the drive by lawmakers to take big tech down a few pegs. Apple and Google own the two operating systems that power nearly every smartphone on earth, but the mobile app stores for both are small relative to their core businesses at roughly 5% of annual revenues. The two might want to consider if every dollar is worth fighting for.

This story has been published from a wire agency feed without modifications to the text