Apple’s attempt to suspend a lower court’s decision to allow third-party payment links to the app store was rejected by the Ninth Circuit Court of Appeals, prompting multiple Wall Street analysts to offer their views.
Analysts say the ruling is part of an ongoing legal battle between Apple and Epic Games and could significantly change the economic model of app distribution.
“This is a big deal for app developers,” JPMorgan wrote, noting that companies can now offer an alternative payment method with a 0% rate in the U.S., up from 27% previously.
JPMorgan Chase & Co. expects developers such as Match Group (NASDAQ:MTCH), Bumble (NASDAQ:BMBL), Roblox and Duolingo (NASDAQ:DUOL) to see improved margins, estimated to be as much as 5% in some cases. Spotify (NYSE:SPOT), Amazon (NASDAQ:AMZN) Kindle, and Epic Games may also benefit from increased user acquisition, after they avoided using in-app subscriptions due to Apple’s fees.
However, Apple’s services revenue may be under moderate pressure. JPMorgan expects “services revenue growth to potentially slow by as much as 200 basis points,” or 2-3% EPS
Analysts at Evercore ISI also voiced this concern, estimating that Apple (NASDAQ:AAPL) earned $7 billion in revenue from U.S. App Stores, or about 6% of earnings per share. “Risk in the services business is a key factor in Apple’s year-to-date -19% performance,” Evercore wrote, although it maintained an “outperform” rating and a $250 price target.
However, Morgan Stanley points out that user behavior hasn’t changed much in the real world.
The bank’s May data showed that U.S. app store revenue rose 10% year-on-year even after the ban. However, they said in a note to clients that their AlphaWise survey showed that 28% of U.S. iPhone users could bypass Apple’s in-app payment system, putting “Apple’s 2% earnings per share at risk.”
With the appeal process likely to last for years, the financial and strategic implications of this decision are likely to be long-lasting, both for Apple and for a wide range of app developers.
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