Apple Faces 2% to 3% Earnings Per Share Decrease as Court Upholds App Store Ruling

A federal appeals court has upheld a ruling that requires Apple Inc. to allow its App Store to support "link payments." This decision, while not expected to significantly impact revenue, could lead to a 2% to 3% decrease in earnings per share, according to analysts. Evercore ISI analysts, in an investor report, noted that while not all developers are expected to immediately leave the Apple ecosystem, the true test will come in June. They believe that despite increased costs, some developers will choose to remain within the ecosystem due to the convenience, trust, and seamless experience offered by Apple's payment system. The analysts also suggested that Apple has valid grounds to appeal the lower court's decision, arguing that it constitutes an unjustified seizure of private property.

The appeals process could take up to two years or more. Although the order took effect on April 30, Evercore ISI pointed out that Apple's App Store revenue grew by 13% overall in May, with a 10% increase in the U.S. market. Evercore ISI estimated that the App Store generates approximately 210 billion dollars in annual sales. In the ongoing lawsuit between Apple and Epic Games, the judge ruled that Apple must allow third-party transactions on the iOS system without charging fees. This decision puts at risk the estimated 70 billion dollars that Apple earns from fees charged to U.S. developers. If this revenue were to disappear entirely, it would result in a 6% reduction in earnings per share. However, Evercore ISI believes the actual impact will be less severe.

JPMorgan also estimated that the ruling could negatively impact Apple's earnings per share by 2% to 3%. Samik Chatterjee, a JPMorgan analyst, stated that while the denial of the stay request is unfavorable for Apple, the severity of the impact is likely to be much lower than currently feared by investors. Morgan Stanley, citing a recent survey of U.S. iPhone users, found that 28% of respondents were "very likely" to bypass the App Store's payment process. Chatterjee noted that if actual behavior aligns with the survey results, 10% of the App Store's revenue, 3% of the services business revenue, and 2% of Apple's earnings per share would be at risk. Based on the latest AlphaWise survey data, JPMorgan estimated that the order could result in a revenue loss of approximately 37 billion dollars. Assuming that 28% of U.S. App Store revenue involves external links (including in-app purchases and subscription services) and that Apple's commission rate is 0%, this would result in a 16-cent (or 2%) negative impact on earnings per share in the worst-case scenario.

Evercore ISI also highlighted that gaming accounts for the majority of U.S. App Store revenue (65%), with many transactions being one-time purchases of 0.99 dollars. If users switch to other payment platforms like Stripe, which charges a 3% transaction fee plus a 0.30-dollar fixed fee, the payment amount would exceed Apple's 27% commission rate. Apple emphasized that in over 90% of transactions conducted through the App Store by 2024, developers will not need to pay any commission. Apple CEO Tim Cook stated, "It's incredible to see so many developers design outstanding apps, build successful businesses, and attract Apple users from around the world."