Analysts comment on “apple tax” ban: Apple (AAPL.US) earnings per share may fall 2% to 3%

Zhitong Finance App learned that a federal appeals court upheld a ruling requiring Apple (AAPL.US) to allow its app store to support “linked payments.” Although the ruling may not have as much impact on revenue as people are feared, it could cause earnings per share to fall by 2% to 3%, according to analysts.

Evercore ISI analysts said in an investor report: “We don't expect all developers to leave the Apple ecosystem right away, and the Apple App Store data for May also supports this view, but the June data is the real test. We believe that despite the increase in fees, some developers will choose to stay within the ecosystem because Apple's billing system provides a convenient, trusted, and frictionless experience, which makes them feel convenient. We also believe that Apple has sufficient reason to appeal to the appellate court, claiming that the lower court's ruling was an unjust deprivation of Apple's private property.”

The appeal process can take up to two years or more. Although the order came into effect on April 30, Evercore ISI stated that overall Apple App Store revenue increased 13% in May, while revenue in the US market increased 10%.

Evercore ISI said, “The Apple App Store generates approximately $21 billion in annual sales. In the ongoing lawsuit between Apple and Epic, the judge ruled that Apple must allow third parties to conduct transactions on the iOS system and must not charge fees for those transactions. That would put at risk what we estimate Apple's approximately $70 billion in revenue from charging fees to US developers. Assuming all of that $7 billion were gone, that would mean a 6% reduction in earnings per share, but we think the actual impact would be less than that figure.”

Second, J.P. Morgan also estimates that this ruling may have a negative impact of 2% to 3% on Apple's earnings per share.

J.P. Morgan analyst Samik Chatterjee said in a report released on Thursday: “Although the denial of the extension application is a negative factor for Apple, we still believe that the severity of the impact is likely to be far below what investors are currently concerned about.”

Meanwhile, Morgan Stanley cites the results of a recent survey of iPhone users in the US as saying that 2% of Apple's earnings per share is at risk. The survey found that 28% of respondents were “very likely” to bypass the app store's payment process.

“If actual behavior matches our findings, then 10% of Apple's App Store revenue, 3% revenue from the service business, and 2% of Apple's earnings per share will face 'risk',” Chatterjee said.

He added, “Based on data points from our most recent AlphaWise survey, we estimate that the ban could result in revenue losses of approximately $3.7 billion. Assuming that 28% of the revenue from the US App Store will be external links (including in-app purchases and subscription services), and that Apple's commission rate is 0%, then this will have a negative impact of 16 cents (or 2%) on earnings per share (in the worst case).”

Evercore ISI also notes that the gaming business accounts for the majority (65%) of US app store revenue, much of which is a one-time $0.99 purchase. If users switch to another payment platform such as Stripe (which charges a 3% processing fee and a fixed fee of $0.30 per transaction), the payment amount will be higher than the 27% processing fee charged by Apple.

Apple emphasizes that developers will not pay any commission for more than 90% of transactions made through the Apple App Store in 2024. Apple CEO Tim Cook said, “It's incredible to see so many developers design great apps, build successful businesses, and attract Apple users around the world.”