Apple Faces Modest Earnings Hit After Court Ruling But Analyst Expects Match, Bumble, Spotify Set To Gain

Apple Inc‘s (NASDAQ:AAPL) latest legal setback is a headwind, but one analyst says the impact on the iPhone maker’s stock price is materially lower than investors feared.

What Happened: JPMorgan analyst Samik Chatterjee has an Overweight rating on Apple, according to a Thursday research note.

The note comes one day after the U.S. Court of Appeals for the Ninth Circuit denied Apple’s emergency application to halt changes to its App Store that resulted from a legal spat with Epic Games.

Judge Gonzalez enforced Apple to allow link-out payments for applications at 0% commission versus 27% prior, Chatterjee noted. Implementing Gonzalez’s order will moderate Services revenue growth by up to 200 bps, which will result in an EPS headwind of 2%- 3%, as highlighted in his prior report.

However, Chatterjee said the actual impact will be driven by consumers’ adoption rate for link-out payments.

As a reminder, before implementing the zero-commission link-outs, the analyst estimated that the US App Store would contribute $11.3 billion in fiscal 2025 (~3% of aggregate revenues).

In the future, investors will watch out for the appeal process against Gonzalez’s order, which may take two years or even more if the case reaches the Supreme Court. Other geographies will leverage the precedence from the current ruling to demand similar implementation of zero commission link-outs, Chatterjee said.

Also Read: Apple App Store Sales Jump In May, Boosting Outlook For Services Growth

Why It Matters: Analyst Cory A Carpenter noted that the court denial is a big deal for app developers, many of whom have already updated their apps to accept credit card payments.

For apps that previously paid fees to Apple, the analyst estimated a potential annual margin uplift:

• 2%-4% for Match Group, Inc (NASDAQ:MTCH) and Bumble Inc (NASDAQ:BMBL)
• 1%-2% for Take-Two Interactive Software, Inc (NASDAQ:TTWO)
• 0.2%-0.5% for Electronic Arts Inc (NASDAQ:EA), and
• 2%-5% for PLAYSTUDIOS, Inc (NASDAQ:MYPS).

Importantly, app store fee relief should represent upside potential to prior guidance, Carpenter said, as companies did not include any relief in their outlooks given the pending stay decision.

Roblox Corp (NYSE:RBLX) generates 30% of revenue from the app store, but the analyst says the margin uplift will depend on how much savings are passed on to developers.

Carpenter said some apps previously did not allow users to subscribe on the app store due to Apple fees, and these companies should see a user acquisition benefit. The companies included Spotify Technology (NYSE:SPOT), Amazon.com Inc (NASDAQ:AMZN), Kindle, and Epic Games.

Spotify said in an Amicus briefing on May 19 that its iOS app update had significantly increased iOS users upgrading to a Premium subscription analyst.

Carpenter expects Applovin Corp (NASDAQ:APP) to be an indirect beneficiary as developers re allocate app store fees to user acquisition.

Price Action: Apple stock is up 0.29% to $203.40 at last check Thursday.

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