JPMorgan Sees Manageable Impact For Apple If App Store Appeal Fails

JPMorgan analyst Samik Chatterjee maintained an Overweight rating on Apple Inc AAPL on Monday.

The latest ruling from Judge Yvonne Gonzalez Rogers has led to a lot of investor questions around the impact on App Store revenues from the use of alternative payments with no obligation to pay Apple a fee relative to the most recent setup of leveraging alternative payments, but with a 27% fee to Apple, after the initial ruling from the same judge enabled Steering.

Chatterjee needed to reiterate some key aspects before getting into scenario analysis to address investor questions.

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The ruling only relates to the steering rules that required Apple to enable steering or link-outs for applications, and there are no implications for In-App Purchase (IAP), as per the analyst. Apple has already appealed the ruling, and the analyst expects a long, drawn-out process. The key watchpoint is how quickly Apple can get a stay on the changes required by the latest ruling while pursuing the appeal process, the analyst said.

He noted the outcome during a long-drawn process could eventually see a fee lower than 27% to enable competition but materially higher than 0%, implying that Apple’s IP in its App Store is limited.

Chatterjee noted that the IP behind the App Store will have to be compensated; the latest court ruling effectively voids the value of the IP.

Publishers or Applications, like Match, have said they saw a 1/3rd take rate on alternative payments offered on Google app stores, but those scenarios included payments within the App.

According to the analyst, the cost of supporting transactions and discounts to promote link-out adoption will limit the economics for the vast majority of publishers.

Chatterjee’s scenario analysis implies modest EPS headwinds at most for Apple (2%-3%) if the company is unable to get a stay in the appeals process and an impact of ~80 to ~200 bps on the growth of Services revenue.

Price Action: AAPL stock is up 0.25% at $211.37 at last check Tuesday.

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