Apple (AAPL) - Get Apple Inc. (AAPL) Report shares look set to rebound from Friday's sell-off, the biggest in four months, as investors picked through the implications of a California court's ruling in its ongoing dispute with Fortnite maker Epic Games.
Investors may also be looking to the group's 'California Streaming' product launch, slated to begin Tuesday at 10:00 am Pacific time, and the expected launch of its new iPhone 13 series
U.S. District Court Judge Yvonne Gonzalez-Rogers ruled Friday that restrictions Apple has put in place that prevent app developers from steering customers to payment options beyond ApplePay are anticompetitive and issued an injunction restricting the practice.
She also ruled that can't prevent app developers from communicating directly with customers through contact information they provided at sign-up, but stopped short of calling the tech giant a monopoly and left avenues of appeal open for both Apple and Epic Games.
Apple's App Store generates around a third of the group's services revenue -- it's fastest-growing division -- and around 7% of the tech giant's total sales. Its margins are also impressive, and any reduction in the 30% commission it charges for in-App purchases will be felt in its bottom line.
"Increased legal/regulatory scrutiny is a risk to both App Store monetization and Apple overall given the impact of services (revenues) on multiple expansion. Indeed, the ability to bypass the 30% App Store cut could meaningfully impact commission dollars, particularly for larger developers," said Credit Suisse analyst Matthew Carbal, who carries a neutral rating with a $150 price target on the stock. "That said, Apple’s in-app payments remove friction at the point of purchase; it’s not clear-cut to us that developers will leave en-masse given the potential risks a fragmented process introduces to user monetization."
"Further, we’d stress the App Store remains highly strategic (and, in turn, valuable) to developers, providing access and exposure to more than 1 billion iPhone users globally that would be costly to recreate," he added. "In our view, the court ruling takes exception to the mechanism of monetization (restricting in-app payment options) rather than the monetization itself."
Apple shares were marked 0.85% higher in ealry trading Monday to change hands at $150.20 each.
Apple notched $84.1 billion in June quarter revenues, with a 43% gross margin, as part of a record report that included 50% surge in iPhone sales and an all-time high in services revenues.
Apple said it sees "very strong double digit year over year revenue growth during the September quarter", but noted it would be slower than that 36% gain recorded over the three months ending in June, which lifted the tech giant's top line to a Street-blasting $81.4 billion.