U.S. District Judge Yvonne Gonzalez Rogers recently ruled in favor of Apple in the Epic Games v. Apple trial. Though the court held Epic Games in violation of its contract, the judge also forbade the Cupertino tech giant from stopping developers from offering users alternative payment options by adding links, information, or any other methods. According to a Morgan Stanley analyst, any changes Apple makes to its App Store will have a limited impact on its revenue.
Apple’s App Store changes will barely impact its revenue
In a note to investors seen by PED30, Morgan Stanley analyst Katy Huberty looked at four recent antitrust developments and made some assumptions about how the ruling will affect the App Store and Apple’s revenue. Huberty looked at the settlement of a lawsuit with Cameron et al, the passing of the South Korea Telecommunications Business Act, the launch of an anti-trust case against Apple in India, and an update to the App Store that will allow developers of “reader” apps to include an in-app link to their websites.
Out of the four, the reader app update is the most likely to have a negative financial impact on the company’s revenue. However, the impact will not be significant. The analyst estimates the “financial impact to Apple is negligible at just 1-2% of EPS, at worst.”
While more developers may consider this path under new rules, App Store revenue from the largest Reader Apps – including, entertainment, music, books, and news apps – is relatively small. The top 10 reader apps account for less than 8% of App Store revenue while the top 20 account for 10% and top 50 account for 13% of App Store Revenue, suggesting the financial risk to Apple from these developers circumventing App Store payments is fairly small.
We view the top 10 or so apps as those that are most likely to have the scale, brand, marketing budget, and customer loyalty to absorb the friction of circumventing the App Store payments platform. Assuming a worst case scenario in which Apple stopped collecting economics from all of the top 20 reader apps translates to downside risk of 4% of Services revenue, 1% of total company revenue, and about 2% of FY22 EPS forecast.
The analyst maintains her 12-month Apple price target of $168.