Apple’s antitrust drama has reignited.
On Thursday, March 4, news surfaced of a double investigation into the company’s business practices regarding its App Store in Europe. One is led by a UK competition regulator and the other, by the European Commission in Brussels.
The following quote, from the head of the British Competition and Markets Authority, summarizes what these probes are all about:
“Complaints that Apple is using its market position to set terms which are unfair or may restrict competition and choice — potentially causing customers to lose out when buying and using apps — warrant careful scrutiny”.
As of the writing of this paragraph, in late morning trading, Apple stock was stuck in negative territory, while FAAMG peers Facebook, Amazon, Microsoft and Alphabet hung on to modest gains for the day. This could be a bearish reaction to the news.
Below, the Apple Maven lists three things that investors should keep in mind, in the wake of the most recent antitrust probes.
#1: Lingering battle
There is nothing particularly new about government regulators going after Apple – and the rest of Big Tech, for that matter – over antitrust and other issues. For example, France fined Apple a record $1.2 billion in 2020, alleging price fixing.
The possibility of further government scrutiny increased after the App Store became the subject of a heated debate in the past year. Epic Games fought the Cupertino company over the 30% commission that Apple charges from its developers on certain transactions, claiming unfair competitive advantage.
Rather than being caught by surprise, investors should consider the most recent developments coming out of Europe as yet another chapter in Apple’s lingering antitrust saga.
#2: Europe sets the tone
Cries for more government regulation over Big Tech is not an European phenomenon. In the US, there has been bipartisan support for limiting the powers of Apple and its peers. Congress even held a widely publicized hearing on antitrust with the companies’ CEOs, in July 2020.
However, Europe seems to be much more willing to pursue the Silicon Valley giants, acting fiercely by imposing heavy fines: $10 billion against Alphabet, $1.2 billion against Apple itself. The New York Times has even called Europe “home to some the world’s toughest policies toward the technology industry”.
Expect the European authorities to lead the way in the upcoming battle against Apple and its App Store policies – and to possibly set the standard on how other countries may address the issue as well.
#3: The stakes are high
While the current investigations are unlikely to lead to a final resolution on antitrust anytime soon, they may still have a shorter-term impact on Apple and its stock.
When faced with scrutiny by Epic Games, the Cupertino company lowered its commission charged on small developers, from 30% to 15%. This was probably a “good faith” move by Apple to appease its critics.
As I argued in a 2020 article, I am concerned about the impact that the ongoing battle might have on the App Store’s successful business model. Regarding the investment thesis:
“Any changes to the App Store’s monetization policies that arise from this fight could be a bearish development for Apple’s stock.”
The App Store is a top revenue generator within the crucial services segment – see pie charts below. Therefore, investors should keep tabs on how the drama evolves from here.
I asked the Twitter-verse what they thought of the most recent chapter on Apple’s antitrust story. Here are the answers:
Read more from the Apple Maven:
(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)