Analyst says DOJ suit will result in Apple paying a hefty fine, and changing its business model


Analyst says DOJ suit will result in Apple paying a hefty fine, and changing its business model

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Commenting about the suit, Ives told clients in a note, “We do not expect any business model changes for now, but Apple clearly is going to have to find a way to eventually settle this case, pay a hefty fine, and ultimately find some compromise with developers on the App Store structure down the road.” The analyst has an “Outperform rating” on Apple’s stock with a price target of $250. The shares closed Friday at $172.28.
The lawsuit, filed Wednesday morning by the Justice Department along with 16 state and district attorneys general, accused Apple of committing several antitrust violations including one that claims Apple blocked the development of a “super app” that would have made it easier for consumers to switch mobile platforms. Apple also was accused of causing the failure of the Amazon Fire Phone in 2014 and of making it difficult for manufacturers like HTC and LG to compete in the industry.

As Ives points out in his note to Wedbush clients, Apple has angered app developers by not allowing them to add a link to third-party payment processors for in-app purchases. Instead, outside of the EU, Apple collects 15%-30% of in-app purchases as it runs these transactions through its own in-app payment platform. As a result of the epic Epic v. Apple lawsuit, Apple does allow developers to include one link to a third-party payment processor but still takes a cut of 12% to 27%.

Meta Platforms, Microsoft, X, and Match Group have filed an amicus brief with the court hearing Epic’s claims that Apple has not followed the decision handed down by Judge Yvonne Gonzalez Rogers back in September 2021. While Apple’s cut of in-app payments has helped the company’s Services unit become Apple’s second-largest business segment after the iPhone (Services generated $85.20 billion in revenue during the last fiscal year, 2023), some changes to the App Store might be the end result of the DOJ’s lawsuit. That would be in addition to the massive fine that Apple will probably be forced to pay.

It probably is in the best interest of Apple not to get bogged down in a long and morale-draining lawsuit. A settlement would help the tech giant put this behind it without spending too much time and money on defending the firm. Besides wondering what constitutes a massive fine, it will be interesting to see what changes Apple is prepared to make to the App Store.

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