How Apple-Epic Court Decision Could Affect Google – Analyst

How Apple-Epic Court Decision Could Affect Google - Analyst

The Google Play logo appears on the screen.

Alexandre Pohl | Nurphoto | Getty Images

Wall Street analysts on Monday began to react early on how Google could be affected by the recent ruling in Epic’s lawsuit against Apple.

On September 10, a judge ruled that Apple couldn’t prevent developers from providing links to pay consumers for in-app purchases outside of the App Store, except Apple’s 30% fee. While the judge did not find Apple to be a monopoly, the company’s shares were down 3% and Google was down 2%.

Epic sued Google for similar allegations in 2020. This case has yet to be heard and it is not known when it will be. However, Google is in a slightly different position than Apple. Android allows third-party app stores, unlike Apple’s iOS, but the Google Play Store, like Apple’s App Store, currently doesn’t allow developers to sign in to other payment methods.

Google does not break down its earnings from the Play Store. However, a recent unsealed court record showed the company generated $ 11.2 billion in Google Play Store revenue, $ 8.5 billion in gross profit and $ 7 billion in operating revenue from the last year. This includes in-app purchases and ads from the App Store. Based on these numbers, JPMorgan estimates that Google Play’s non-advertising revenue will reach around $ 14 billion in 2021, or around 5% of Alphabet’s total revenue.

Credit Suisse analysts Raymond James, Bank of America, JP Morgan and Morgan Stanley say the Epic ruling against Apple indicates that there is a risk that Google will be forced to promote alternative payment methods or workarounds for Google charges. Developers may have to give permission for this.

“Concerns about Google Play’s revenue are increasing,” Bank of America analysts said in a note to investors on Monday.

Bank of America analysts said it was good news for Google that Apple does not have a monopoly on the App Store, but said Google was not yet clear. Analysts have warned that Google’s Android deals with app companies and device makers are more complex and therefore subject to more anti-competitive scrutiny than Apple’s. But he maintained a buyout on Alphabet shares, arguing that any regulation of Google’s App Store could also help reduce traffic acquisition costs paid to Apple.

Credit Suisse analysts said that in a theoretical worst-case scenario, where Google took 0% of the commission from the Play Store, it expects the company’s shares to trade around $ 3,200 per share in 2022, if applicable in app revenue. Was not hit.

Google’s core business could save potential big hits

Credit Suisse analysts Raymond James, Bank of America, JP Morgan and Morgan Stanley agreed that other major contributors to Google’s revenue, such as search and YouTube, would suffer less financial consequences if Google were to adjust its use of the Play. Store. How does he collect money from

Analysts at Raymond James said Google could lose 4% of its gross margin in 2022 if it cuts developer profits by 50%. “Our bottom line is that there is a slight risk to the estimates, we think it will take some time to play out (especially with the potential appeal) and that Google will continue to drive the continued strength of its core ad revenue. “We’re well positioned for this,” analysts at Raymond James said in a note to investors, adding that developers could spend the savings on Play Store fees on advertising.

Morgan Stanley analysts said any potential change in the way Google collects developers’ money would likely affect its largest app partners and therefore reduce the impact on Google.

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