Weighing Anti-Trust Concerns Around Apple
Proposed European Law Could Upend Apple Business Models
24 MAY 2022 - Quoting a piece from Apple Insider, posted last Friday:
A European Parliament committee has advanced an agreement between member states on the Digital Markets Act, which if passed as it presently stands, will force Apple and others to open up otherwise restricted app stores, hardware features, and more.
“End of days” stuff. Ragnarok. According to the piece, the rules:
Could require Apple to open iPhone to third-party app stores
Could force Apple to make iMessage interoperable with other messaging apps
Could “end self-preferencing of first-party apps” in app stores
Could force Apple to open access to NFC communications technology in its devices
And I feel certain there’s plenty more where that came from.
Failure to comply would be expensive. According to Apple Insider:
The European Commission can levy fines of up to 10% of a company's global revenue from the proceeding financial year. Those fines can reach up to 20% in cases of repeated violations.
The laws could be on the books and enacted by the middle of the third-quarter, according to the report. Sounds serious. But what does money think?
Evercore Sizes Up Anti-Trust Risks for Apple
Over the weekend, Apple 3.0 had Evercore analyst Amit Daryanani doing a “deep dive” on Apple’s anti-trust risks, including those posed by the European Commission. In fact, that was one of four threat vectors eyed by AD-Rock. According to the analyst:
The bill will target side loading and third party payments and could have an ~9% EPS impact if it forces Apple to lower its App Store fee.
While Apple Insider says such rules could change as early as next quarter, Daryanani doesn’t see them hitting until sometime in 2023. Other risks outlined by the analyst:
The Apple v Epic fight could lead to a less than favorable ruling, though he thinks that that could take years to play out
Legislation in the US Senate could pose risks, though Daryanani seems to think that the changes from the European Commission will do what the Senate threatened to do
The U.S. Department of Justice could still bring an anti-trust case against Apple, though the DoJ seems more interested in stopping giant mergers. While Apple says it would be open to those should the right ones come along, it’s pretty much never done one, so there seems little risk
Summing up his note, Daryanani wrote:
The anti-trust landscape is vast and constantly changing, which is why getting an expert perspective can be valuable. Our panel will include experts who work on both the policy and legal sides in both the EU and US. Fundamentally, we think AAPL remains a core name to own.
Expert Opinion
He said they would hear from experts, and they did! Late in the day on Monday, Daryanani posted notes from a webinar featuring Jennifer Rie (Senior Anti-Trust Litigation Analyst, Bloomberg) and Morton Skroejer, (Senior Director for Technology Competition Policy, SIIA). Summing up some of Daryanani’s top takeaways:
The EC thing is a thing
However long it takes, Apple likely to win the Epic Fortnite fight
While the DoJ may bring an anti-trust case against Apple, Daryanani’s experts doubt it will succeed
While both Democrats and Republicans dislike big tech, the reasons for their dislike are so different that meaningful legislation looks doubtful
Should the Senate actually get its act together, Facebook and Google would likely feel the brunt, with Amazon and Apple seen as lower priority
Daryanani sums up this note, saying, “Legal and regulatory risk are not going away for big tech, but Apple seems to be relatively better positioned than some of its peers.” He’s got an “Outperform” rating on Apple shares. He’s set Evercore’s price target on the shares at a Street high-tying $210.
