Analysts clarify how the Apple Epic court docket ruling may have an effect on Google
The Google Play logo is displayed on a screen.
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Wall Street analysts began to provide initial responses Monday on how a recent verdict in Epic’s lawsuit against Apple could affect Google.
On September 10, a judge ruled that Apple cannot prohibit developers from giving consumers links to pay for in-app purchases outside the app store, while avoiding Apple’s 30% fee. While the judge found Apple not monopoly, the company’s shares fell 3% on the news and Google fell as much as 2%.
Epic sued Google in 2020 over similar allegations. This case has not yet been brought to trial and it is unclear when it will. However, Google is in a slightly different position than Apple. Android allows third-party app stores while Apple’s iOS doesn’t, but the Google Play Store, like Apple’s App Store, doesn’t currently allow developers to link to other payment methods.
Google doesn’t break its revenue from the Play Store. However, a recently unsealed court record showed the company had $ 11.2 billion in sales, $ 8.5 billion in gross income, and $ 7 billion in operating income from the Google Play Store last year. This includes in-app purchases and app store advertising. Based on these numbers, JPMorgan estimates that Google Play’s ad-free revenue will be about $ 14 billion in 2021, or about 5% of Alphabet’s total revenue.
Analysts from Credit Suisse, Raymond James, Bank of America, JPMorgan and Morgan Stanley say the Epic vs. Apple ruling suggests a risk that Google may also have to allow developers to promote other payment methods or workarounds for Google fees .
“There are growing concerns about Google Play revenue,” Bank of America analysts said in a statement to investors on Monday.
Bank of America analysts said it was good news for Google that Apple’s App Store was not classified as a monopoly, but said Google is not yet out of whack. The analysts warned that Google’s Android agreements with app companies and device manufacturers are more complex and therefore subject to more anti-competitive controls than Apple’s. However, they maintained a buy on Alphabet stock, arguing that any regulation of Google’s app store could also help lower the traffic acquisition costs Apple paid.
Credit Suisse analysts said that in a theoretical worst-case scenario where Google took 0% of Play Store commissions, Google expects the company’s stock to trade around $ 3,200 per share in 2022, up from $ 3,400 if app sales weren’t impacted.
Google’s core business can shield potential big hits
Analysts from Credit Suisse, Raymond James, Bank of America, JPMorgan, and Morgan Stanley all agreed that Google’s other big revenue drivers like Search and YouTube would dampen Google’s financial success if Google had to tweak the way it did Collects money from the Play Store.
Raymond James analysts said Google could lose 4% of its gross profit in 2022 if it cut developer revenue by 50%. “Our bottom line is that while estimates pose a modest risk, we believe it will take time for that to work (especially if there are likely objections) and Google remains well-positioned against risk,” as its core advertising revenues are strong, Raymond That is what James analysts said in a statement to investors. They added that developers would likely spend any savings on Play Store fees on advertising.
Morgan Stanley analysts said any possible changes to the way Google raises money from developers would likely only affect its largest app partners, and therefore minimize the impact on Google.