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Home / Technology / Are investors giving up a real risk to Apple’s future?

Are investors giving up a real risk to Apple’s future?



apple (NASDAQ: AAPL) It seems that everything will be fine after another quarter of the income loss. However, Congress has a vision of some of the major tech companies – and regardless of your market cap, the government is bigger. Apple hasn’t grown by making massive acquisitions and it doesn’t quite dominate a system, like Amazon.com‘S (NASDAQ: AMZN) leads in e-commerce. However, Apple’s App Store appears to be a real antitrust risk that very few people take seriously.

Don’t pass, don’t charge $ 200

Congress is targeting four companies for antitrust fears: Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), Apple, Amazon and Facebook (NASDAQ: FB). The main topic of antitrust investigations is ongoing What, if any, practices are unfair to each of these companies.

Apps on iPad

Photo source: Getty Images.

Daniel Roberts of Yahoo Finance concludes that “Apple in particular, has reason to be the most unaffected of the four when it comes to lawmakers threatening antitrust action.” Unlike Apple, other companies have made significant acquisitions, or it’s clear that they dominate a certain business. Theoretically, the government could force these Goliaths to divest previous acquisitions or change their business models.

But these arguments do not seem to understand that monopoly is not the result of acquisitions. Consider the almost perfect example of Microsoft‘S (NASDAQ: MSFT) antitrust issues in the 1990s. The company dominated the PC operating system and included Internet Explorer with every release of Windows. A federal district judge ruled that the binding was unfair and that Microsoft should be split into two different companies. If the higher court does not cancel this decision, Microsoft today may be a completely different company.

Most antitrust matters are decided at least in part on the basis of the Sherman Antitrust Act. The act states that “only unreasonable restrictions on trade through acquisitions, mergers and exclusion tactics” are a violation. The last item – elimination tactics – make Apple investors nervous.

One of these things is unlike any other

The four companies in the government’s sights seem to have clear differences in antitrust risks.

Items

Alphabet

Amazon

apple

Facebook

Antitrust concerns

Search by Google

Amazon online store

App store

Facebook / Instagram

Competition

Bing / Yahoo / others

Etsy (NASDAQ: ETSY) / Wayfair (NYSE: W) / Overstock.com )

nobody

Twitter / Snapchat / LinkedIn / others

(Source: Investopedia. Table by author.)

The list above is by no means exhaustive, but we can see the obvious differences between the four companies. In traditional search, Google may lead, but Facebook received 1.5 billion searches per day last year. And more consumers are beginning to search for online shopping on Amazon than anywhere else.

When it comes to Facebook, the user growth is caused by the word pandemic Twitter (NYSE: TWTR), Snapchat (NYSE: SNAP)and LinkedIn owned by Microsoft can help counter the concerns of regulators.

What about Amazon? As of Q1 2017, at least 50% of Amazon’s sales have come from third-party sellers. This seems to oppose the anti-competitive e-commerce giant. While it’s true that Amazon cuts third-party sales, but eBay (NASDAQ: EBAY) – typically for 10% of the final value charge, payment fee and other potential upgrade costs. If you choose Etsy, you will pay transaction and billing fees, listing fees, etc.If the client is less willing, it is also possible to sell through options like classifieds or other applications.

When Apple is concerned, there is no other legitimate way to download and install apps on iOS devices. If the lack of competition constitutes a monopoly, this could be a problem for the company.

Break the monopoly?

Looking at how the App Store works, the truth seems to be working against Apple. First, Apple alone decides what apps they allow in its store. According to the company, 60% of the apps were approved, but 40% were rejected because of “minor bugs, followed by privacy concerns.”

Second, Apple receives commissions ranging from 15% to 30%, depending on the situation. With no other option, developers have to pay or lose access to millions of iOS users. Apple has said that 84% of its apps are free and that developers don’t have to pay. However, there is an annual fee of $ 99 is part of the Apple Developer Program.

Third, there are examples of brand recognition companies that can surpass Apple’s fees, but smaller developers have no choice. For example, the email app Hey charges $ 99 annually, but doesn’t offer the option to pay via the App Store. Apple is said to have asked developers to add the option of registering in-app or faced with the app being removed.

Opposite, Netflix (NASDAQ: NFLX) and Spotify (NYSE: SPOT) no longer allows customers to subscribe to their services via iOS to avoid paying Apple fees. It seems that App Store is the definition of exclusivity. If the government decides so, the Apple of today could be a lot different from the Apple of tomorrow.

How antitrust action can change Apple

Last quarter, Apple generated $ 13 billion in services revenue, generating a gross profit margin of more than 67%. However, a strong antitrust action can change some of the math. Apple Music is priced similarly to its competitors, but Apple doesn’t have to pay 15% to 30% commissions to sell its own services.

The European Commission is conducting an investigation into Apple’s App Store activities. The preliminary investigation found that Apple Music competitors removed the option to subscribe in-app or increased in-app prices to pass Apple’s fees to customers. Apple’s App Store review guidelines specifically say subscriptions, in-game currency, or access to premium content, must use in-app purchases. The requirement to use Apple in-app purchases, rather than allowing developers to use payment methods outside of Apple, is the definition of an “exclusion tactic” contained in the Act. Antitrust Sherman.

Meanwhile, Apple Arcade curated games, “won’t be available on any other mobile platform or in any other subscription service.” Also, these games cannot be played on iOS without an Arcade subscription. While the game developers clearly choose whether or not they want to join Arcade, they have very little choice of limitations. It’s not unique to some platform-specific games (many game consoles have titles available only on that particular system), but this isn’t a single game or a few. play – it’s about 100 games that are essentially locked to Android users and all non-Arcade subscribers. The fact that some of the Arcade games are available on PS4, Xbox One and PC, but not on Android, seems designed to limit the competition on mobile devices.

Antitrust action could force Apple to remove the App Store or at least open its ecosystem. Opening an app store to compete means having to charge less for app developers to compete effectively. This action has the potential to slow revenue growth and reduce profits. A full side story means Apple will be required to pay a commission for its services, like Apple Music, which has received a free ride so far.

With Apple shares trading at a forward P / E of more than 33 – much higher than at any point in the past decade – they can’t really be considered a big deal.

It’s hard to gauge how ultimately affected Apple is by the ongoing antitrust concerns. However, investors should be aware of this risk towards a company’s future and adjust their expectations accordingly.




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