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Apple (AAPL) App Store Prospects Clouded by Epic Games Ruling

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Apple (AAPL - Free Report) received an adverse ruling in the lawsuit against Fortnite developer Epic Games after U.S. federal Judge Yvonne Gonzalez Rogers ruled that the iPhone-maker has to allow third-party payment options offered by developers in their mobile applications.

Apple charges a commission of up to 30% on any in-app purchases made by users through its payment system. However, Judge Rogers’ permanent injunction is now expected to hurt App Store’s top and bottom lines as users will not only have more payment options, but can also leave Apple’s ecosystem to buy digital goods directly from developers.

Apple’s 30% charge has been a bone of contention between the company and a number of developers, including Epic Games and Spotify (SPOT - Free Report) .

Epic sued Apple after the latter removed Fortnite from its App Store. Apple stated that the game violated its software-distribution platform guidelines and countersued Epic. The game-maker has also sued Alphabet (GOOGL - Free Report) division Google over its Google Play Sore practices.

Judge Rogers ruled that Epic did violate its App Store contract when it added a direct payment option to Fortnite for iOS. Epic will have to pay $3.7 million related to fees for Fortnite purchases in August and October 2020. Epic should also pay Apple its 30% cut for purchases made between November 2020 and the ruling.
 

Apple Inc. Price, Consensus and EPS Surprise

Apple Inc. Price, Consensus and EPS Surprise

Apple Inc. price-consensus-eps-surprise-chart | Apple Inc. Quote

 

Judge Rogers also ruled that Apple is not a monopoly rejecting Epic’s claims.

Nevertheless, Apple shares fell 3.31% to close at $148.97 on Sep 10 following the ruling.  This Zacks Rank #1 (Strong Buy) company’s shares have returned 12.3%, underperforming the S&P 500’s rally of 24.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

App Store Important for Services Growth

Apple’s Services business has become a major source of revenues, driven by App Store, Cloud Services, Music, advertising and AppleCare.

The App Store continues to draw the attention of prominent developers from around the world, helping the company offer appealing new apps that drive App Store traffic. This has helped Apple garner more than 700 million paid subscribers across its Services portfolio.

However, the high App Store fees and Apple’s market dominance has attracted attention from regulators and lawmakers globally.

Apple recently allowed some concessions to developers to ease some pressure off the latter regarding its App Store practices. As part of the App Store Small Business Program, businesses earning less than $1 million annually will continue to benefit from the reduced commission for at least the next three years.

Per a Bloomberg report, developers like Netflix (NFLX - Free Report) can also use communications, such as email, to share information about payment methods outside of their iOS app.


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