Apple stock fundamentals strong despite antitrust lawsuit: Analyst
TLDRThe European Union has initiated non-compliance investigations into Big Tech companies, including Meta, Alphabet, and Apple, under the Digital Markets Act. The focus is on their practices within their respective platforms, such as Google Play and Google Search for Alphabet, and the App Store and Safari for Apple. Despite legal challenges and potential pressure from the EU and the Department of Justice in the US, experts believe that Apple's loyal user base and strong fundamentals will likely maintain its market position. The long-term impact on Apple's ecosystem and bottom line remains uncertain, but the company's strategic negotiations and commitment to user security are expected to play a significant role.
Takeaways
- 📜 The EU has initiated non-compliance investigations into Big Tech companies such as Meta (previously Facebook), Alphabet, and Apple under the Digital Markets Act.
- 🔍 Alphabet is being investigated for its rules on steering in Google Play and self-preferencing in Google Search.
- 🍏 Apple is under scrutiny for its App Store rules and the choice for screen in Safari, as well as its pay or consent models.
- 💼 Jim Ker, Director of Research, maintains a buy rating on Apple despite recent legal challenges from both the DOJ and the EU.
- ⏳ Legal cases against tech companies like Apple often take a long time to resolve, and Apple is expected to negotiate and grant some degree of openness to its ecosystem.
- 🔐 Apple's core user base is anticipated to remain loyal despite potential changes to its ecosystem due to ongoing legal and regulatory pressures.
- 📉 Apple's response to the DOJ lawsuit indicates a commitment to their principles of operating their ecosystem with a focus on device security.
- 📈 Apple's stock performance has been strong, with a 48% increase in 2023, despite facing challenges in certain regions like greater China.
- 💡 Jim Ker believes that Apple's fundamentals are strong and that the company's focus on security and user experience will continue to drive long-term stock performance.
- 🤝 The outcome of the EU and DOJ investigations is expected to involve negotiations with Apple making some concessions to allow more openness in its ecosystem.
- 📊 Apple's stock is trading in line with its five-year historical multiple, offering potential value compared to other Big Tech names that are trading at higher premiums.
Q & A
What is the recent action taken by the EU against big tech companies?
-The EU has initiated non-compliance investigations under the Digital Markets Act into Alphabet's rules on steering in Google Play and self-preferencing on Google Search, and Apple's rules on steering in the App Store and the choice for screen in Safari.
What does the investigation mean for Apple specifically?
-The investigation could potentially affect Apple by increasing regulatory pressure and possibly requiring them to make their ecosystem more open. However, the core user base of Apple and iOS is expected to remain loyal despite these changes.
How does Jim Ker, the director of research, view Apple's legal situation with the DOJ lawsuit?
-Jim Ker believes that Apple's response to the DOJ lawsuit shows they are standing on their principles of operating their ecosystem with a focus on device security. He expects Apple to negotiate and grant some degree of openness over time due to the legal pressures.
What is the long-term outlook for Apple according to Jim Ker?
-Jim Ker maintains a buy rating on Apple, citing the company's fundamentals as more indicative of long-term stock drivers. He points out that Apple's stock was up 48% in 2023 and expects the company to continue performing well despite the legal challenges.
What are the concerns regarding Apple's potential need to reveal business information due to the antitrust case?
-There are concerns that Apple might be forced to reveal details about their business offerings due to the antitrust case. However, Jim Ker does not expect major revelations as he believes Apple has been operating in the same manner and is not behaving unethically.
How is Apple's current financial performance compared to the previous year?
-Apple's financial performance has shown improvement. While Mac sales were down in double digits and iPhone sales were down about 5% in the previous year, the current year shows Mac sales slightly up and iPhone sales up by a few percentage points.
What is the market consensus for Apple's earnings?
-The street consensus for Apple's earnings is slightly down for the current year. However, Jim Ker anticipates surprise quarters ahead and believes the company will continue to do well.
How does Apple's stock performance compare to other big tech names?
-Apple's stock is trading in line with its five-year historical multiple, unlike other big tech names that are trading at significant premiums to their past five-year levels. Despite this, Apple's stock is down about 8% year to date.
What is the EU investigation's focus regarding the App Store?
-The EU investigation is focused on whether the App Store is too restrictive, with concerns that developers may be undercompensated and that there is an effective firewall preventing apps from functioning well outside the App Store.
What is the expected outcome of the negotiations between Apple, the EU, and the DOJ?
-The expected outcome is that there will be a series of negotiations, with Apple likely giving some ground and the EU and DOJ also making concessions. Ultimately, this could lead to a slightly more open Apple ecosystem.
How does Jim Ker assess Apple's ability to maintain its ecosystem despite legal pressures?
-Jim Ker believes that Apple has some power to preserve most of its ecosystem. He notes that while there may be negotiations and potential changes, the core loyalty of Apple's user base and the company's focus on security and principles are likely to remain intact.
Outlines
🔍 EU Investigation into Big Tech Giants
The European Union has initiated non-compliance investigations under the Digital Markets Act against major technology companies, including Meta (previously known as Facebook), Alphabet, and Apple. The focus of these investigations is on the practices of these companies regarding steering users towards their own services on platforms such as Google Play, Google Search, the App Store, and default settings for Safari. The discussion revolves around the implications of these legal actions for Apple, with Jim Ker, the director of research, sharing insights. He maintains a positive outlook on Apple, despite the challenges posed by the investigations, citing the company's strong user loyalty and fundamentals. He expects negotiations to lead to some degree of openness in Apple's ecosystem over time but believes that Apple will retain most of its control. Additionally, he does not anticipate any major revelations from the investigations that could significantly impact Apple's business operations or confidentiality arrangements.
📰 Recap of Apple and Meta-Alphabet News
This paragraph serves as a brief recap and transition, joining the discussion on the recent news concerning Apple, Meta, and Alphabet. It provides a segue into the next segment of the conversation, which delves into the specifics of the EU's actions against these tech giants and their potential implications for the industry.
Mindmap
Keywords
💡Big Tech
💡EU
💡Digital Markets Act
💡Google Play
💡App Store
💡Safari
💡Meta Pay
💡Consent Models
💡Antitrust
💡Fundamentals
💡Ecosystem
Highlights
The EU has initiated non-compliance investigations into big tech companies, specifically targeting Meta, Alphabet, and Apple.
The investigations are focused on the Digital Markets Act and the companies' practices, including Google Play and Google Search, as well as the App Store and Safari.
Jim Ker, the director of research, maintains a buy rating on Apple despite the recent legal challenges from both the DOJ and the EU.
Ker expects Apple to negotiate and potentially allow more openness in its ecosystem in response to the investigations.
Apple's core user base is anticipated to remain loyal despite potential changes to the company's ecosystem.
Apple's response to the DOJ complaint emphasizes the company's focus on device security and operational principles.
The EU investigation appears to address concerns about the App Store's inclusivity and developer compensation.
Negotiations are expected to result in a more open Apple ecosystem without significantly compromising its core values.
There is speculation about Apple being forced to reveal confidential business information due to the antitrust case.
Ker does not anticipate major revelations from the case, as Apple has consistently operated in the same manner.
Apple's stock performance in 2023 showed a significant increase, with the company's operations seemingly turning around.
Mac and iPhone sales have improved, with the company performing well in all regions except greater China.
The street consensus for Apple's earnings is slightly down, but the company's stock is trading in line with its five-year historical multiple.
Despite the ongoing legal challenges, Apple's stock is still trading at a relatively stable rate compared to other big tech names.
Ker believes that Apple may experience some surprise quarters with positive financial results moving forward.