Apple is Losing Monopoly in App Store: What Happens to Its Shares?
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In summer 2020, Epic Games challenged the tech giants Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG), suing them. The stumbling block was the monopoly created by these companies and the commission fees they charge for purchases in App Store and Google Play. The lawsuit might not have seen light but Apple and Google deleted the Fortnite app from their stores because the developers called customers for paying directly to Epic. Anyway, Epic Games started war against the tech giants.
At that time, it was hard to believe that Epic Games would succeed in any way. Apple and Google spend millions of dollars on lobbying their interests, so the litigation could last for years. However, a year later we see Apple going to some concessions, letting developers give users their own payment options.
How does this threat Apple in the future? Is the company indeed ready to give away millions of dollars to rivals? Is it worth investing in it? This article might give some answers.
Epic Games might win over Apple in court
Let us start with the following: there is no court decision concerning Apple vs Epic Games yet. Apple made an attempt to settle the dispute with a group of developers. The problem is that the class action and the lawsuit from Epic are worked on by one and the same judge. In such circumstances, Epic is very likely to win.
Why did Apple go to concessions?
South Korea imposes limitations on Apple and Google
On the whole, last week was super eventful for the tech giants. There seems to be a trend against monopolies, so everyone is trying to take their bite.
On Tuesday, the government of South Korea passed a law that put an end to the undisputed control of Play Market and App Store over apps. Apple and Google are no more allowed to use only their own payment systems inside application stores; neither may they delete apps or suspend registration if the developer use an alternative payment system. This is the first such case in the world and a signal that monopolies are losing control over the situation.
Ireland fines Facebook
South Korea limited itself to a draft bill only, while Ireland went further. The government fined WhatsApp (belongs to Facebook (NASDAQ: FB)) for 225 million EUR for non-transparent use of user data.
The draft bill that made this fine possible was passed three years ago but brought to light only nowadays. What aggravates things is that other European countries insisted on increasing the fine. The law allows to punish the country for 4% of its global income. For the Irish budget this is a substantial sum. The behavior of European countries shows that they are ready to fight monopolies, and fines might be high.
Now is the time when the economy is recovering from the pandemic, yet the recovery is slowing down, while tech giants raised their income to highs during the pandemic. The time has come to share as long as the companies generate huge sums of income. For example the annual revenue of Apple is 347 billion USD, which is just 30 billion USD less than the Irish GDP.
USA and Australia join in the fight with monopolies
After the news about the draft project in South Korea, we heard that the Ministry of Justice of the USA is preparing the second anti-monopoly lawsuit against Google. The first one was filed in October, 2020. Australia also decided to take part in tegulating the business of Apple and Google and started considering new laws that would regulate the actions of the companies in terms of payments.
Advance on Apple, Google, and Facebook is going all over the world. The situation made Apple go to concessions to developers because waiting could cost more.
Investors supported the decision of Apple
All in all, the decision looked logical. Investors reacted positively to the news about regulating the dispute with the developers, and the company's shares neared their all-time highs. Moreover the Japanese Fair Trade Committee stopped its investigation against Apple. Earlier it suspected Apple of violating the anti-monopoly legislation by making users pay for services in apps. The investigation started back in 2016 and stopped only now when South Korea gave an example to the rest of the world. Japan took time gathering evidence.
What happens to Apple income now?
The company earns billions of dollars on commission fees in App Store. In 2020, it made 22 billion USD on commissions, but it is only 8% of its total revenue. The decision to go to concessions does not mean that the company will lose its profit from the segment altogether because many users will keep paying via App Store just out of habit. The issue of safety is crucial here as well, and safety of payment is a priority of Apple and Google.
Hence, we may only speak about a possible decrease in commissions to competitive levels or a decrease in the profit made on commissions due to a decrease in the number of such transactions.
Apple will make a serious decrease in payments only if it sees a serious competitor on the horizon. If you address a random person in the street while they are playing on their phone at a bus stop, they will name only two application stores: App Stora and Play Market. This means there are no serious rivals to these two on the horizon.
All in all, the decision made by Apple will not become a serious negative influence on the company's income.
How to make up for the lost income?
According to the last report, Apple makes 79% of its revenue selling gadgets and accessory and 21% — providing services. Revenue from services is growing faster than from selling gadgets, which means this sector of the company's business is developing faster and contains the potential for further growth of income. It might make up for the probable loss of profit from commission fees. In this case, we mean revenue from paid ads. In 2020, digital ads brought Apple about 2 billion USD.
This May, the company added extra paid ads to the search page in App Store. In the future, the revenue from ads can be increased by working with other apps, not yet monetized by Apple so actively. These are Apple Maps, Apple News, Apple TV+, Apple Fitness+, Apple Arcade, Apple Music, and iCloud. Experts say that by 2025, this type of revenue will have grown from 2 to 20 billion USD, making 9% of the company's revenue.
According to the report, there are 700 million of paid subscribers in the Apple ecosystem. Over a year, this number grew by 150 million people (which is a dream of Netflix). This is a huge client base that creates demand for Apple goods and services.
With all mentioned above, a decrease in the App Store revenue does not look like a global problem, potentially harmful for the whole tech giant.
How did the news influence the stock price of Apple?
Now look at the chart of the company's shares. The beginning of last week was amazing: the shares grew by 3%. Then we heard about South Korea, USA, and the decision of Apple itself. Each piece of news was interpreted as negative, potentially harmful for the company's income, and the share price headed down, yet every time on the next day trades opened at a higher price that they closed on the day before. In other words, investors did not interpret the events as a threat to financial stability and used the decline as a chance to buy the shares.
May the share price of Apple fall?
The shares are trading above the 200-days Moving Average, which means there is an uptrend. However, the quotations are quite far from the MA, and in such circumstances they are likely to start correcting. This scenario is supported by the resistance level, at which the shares are trading now. Anyway, do not try to make money on selling the shares.
Firstly, the decline will be signaled by a bounce off the resistance line and further breakaway of the support line at 150 USD. Then they might only drop to 140 USD. However, this is not a probable event. The reason is the behavior of investots.
When there appeared negative news about the company, declines were bought back over a trading session. If the the shares drop below 150 USD many will decide to invest in the company or buy more Apple shares.
Hence, the decrease might stop fast, not reaching 140 USD. So, if the correction does happen, you should buy Apple shares instead of trying to make money on the decline.
Closing thoughts
We will hear about anti-monopoly investigations against Apple, Google, and Facebook many time. This will thrill investors, provoking the most emotional players to sell their shares.
Apple with its army of fans amounting to 700 million users, will find a way to make up for a decrease in the revenue from the App Store commissions by monetizing their apps. Do not forget that the company is planning to enter the market of electric cars and spends billions on stock buyback. In Q2, 2021,the company spent 29 billion USD on it. And this is the only one of the three tech giants that pays dividends.
