Mike Peterson
Investment bank Wedbush believes that Apple will successfully defend its App Store polices in court in the Apple v. Epic Games legal battle.
In a note to investors seen by AppleInsider, Wedbush analyst Daniel Ives writes that Epic Games has taken a "risky and calculated path" in its ongoing dispute with the Cupertino tech giant. The Apple v. Epic Games trial is going to court on Monday, May 3.
Ives says that Epic is looking to leverage its 350 million players and global presence to bypass the platforms of Apple and Google. Along the way, the company wants to partner with other developers in a "groundswell movement" against Apple.
Apple is currently in the bright spotlight of antitrust scrutiny in the U.S. and European Union. However, Ives says that Epic's lawsuit and attack on Apple's App Store policies is a "high stakes game of poker."
The analyst says that Apple has legally defended its App Store policies time and time again. He believes the court battle with Epic Games will be "no different."
From an investor perspective, Ives says Apple's Services business and its more than $65 billion in annual revenue remains rock solid. He continues to apply a $1.3 trillion valuation on Apple's Services business and says it'll be key to future revenue growth for the company.
Although a ruling against Apple would be a "gut punch to the App Store crown jewel," Ives says he views Apple's app fee structure as "fortress-like despite the Epic noise." However, he added that Wedbush will be watching the trial closely and monitoring for any ripple effects.
Ives maintains his Outperform rating for Apple and raises his 12-month AAPL price target to $185, up from $175. The target is a sum-of-the-parts valuation based on Wedbush's 2022 estimates, and includes a 16x multiple applied to Services at $1.3 trillion and a 7x multiple applied to the rest of Apple's hardware ecosystem at $2.1 trillion.
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An investment banking analyst has no more legal insight than any of the commenters here on the subject, no matter how much they fancy themselves experts on all judicial matters.
I don't know if "poker" is the best analogy. Seems more like Epic is pulling the arm on a slot machine and hoping to get lucky while also knowing the odds of winning are not in their favor.
From PED and Ben Thompson (Stratechery) today:
"My assumption is that the trial makes Apple look very bad, and that Apple wins."
What Apple is arguing is that “Apps” should be colored blue too : Spotify does not in fact have the right to communicate to customers via their app because it runs on iOS (this also applies to App Tracking Transparency). I managed to kick off quite a Twitter debate about the validity of this claim (personally I find the store comparison absurd; plenty of products list their website in their instruction manual or on their boxes, and said websites often give you the option to purchase said product), but I wanted to bring up this image because it’s helpful as a primer for all of these antitrust actions. In short:
• The E.U.’s objection to the Apple’s anti-steering rules is focused on preventing Apple from controlling what an app says.
• The E.U.’s objection to the mandatory use of Apple’s in-app purchasing is focused on payment processing.
• Epic’s lawsuit focuses on both app installation (arguing for third-party app stores) and payment processing (arguing that Apple has illegally tied payment processing to app installation).
Epic’s approach is clearly the most ambitious, and, as I noted, the least likely to succeed. What seems like a mistake to me is Apple’s insistence on anti-steering rules. The fact that apps can’t even tell you that they have a website is what prompted Senator Blumenthal’s observation that Apple and Google were in Congress to “defend the patently indefensible.”
To put it in terms of the stack, I think Apple would save itself a whole lot of trouble — and, it should be noted, give its customers a better overall experience — if they gave up on controlling what Apps can or cannot say, or link to. I also think they should allow storefronts in webviews, which will relieve pressure on the payments layer (although it won’t satisfy Epic), but even if the company won’t go that far, the gag order it puts on developers does nothing but engender bad will, bad PR, and, from Apple’s perspective, bad political outcomes.