Apple (AAPL) a Favorite to Win a Major Antitrust Trial Against Epic Games, Wedbush's Dan Ives Says

May 3, 2021 12:16 PM EDT
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Wedbush analyst Dan Ives believes Apple (NASDAQ: AAPL) is the favorite to win the legal battle against Epic Games and therefore, defend its “golden jewel App Store ecosystem.”

Apple is set to face Fortnite creator Epic Games in an antitrust trial that starts today after the video game company filed a lawsuit that could have an impact on Apple’s App Store business.

Epic Games filed the lawsuit in 2020 in the U.S. District Court for the Northern District of California which is focused on two of Apple practices including its requirement that virtually all third-party software for its devices have to be distributed through its App Store, and the requirement that developers use Apple's in-app purchase system, which charges fees of up to 30%.

Last year, Epic launched its own in-app payment system in Fortnite to avoid Apple’s commissions, which resulted in Apple removing Epic from its App Store. Epic does not seek financial damages but is asking the court to halt many of Apple’s practices.

In response, Epic brought a lawsuit against Apple, accusing the tech giant of abusing its power of app developers by introducing requirements that affect the competition in the software market. The video game maker also initiated a public relations campaign to emphasize its allegations, all while Apple was facing scrutiny from legislators and regulators in the U.S. and other countries.

Ives weighs in and says that Epic opted for a “risky and calculated path” to challenge Apple in times when the US tech giant faces scrutiny both in the US and Europe for its 30% fee structure.

“While Epic will play into Fortnite's massive installed base which is unrivaled and drum up support (through social media, etc), legally Apple has successfully defended its App Store moat again and again with this time being no different in our opinion. From an investor perspective, the key services business and its $65 billion+ annual revenue stream for FY21 remain what we estimate is a $1.3 trillion valuation alone for this business and key to future monetization efforts with more bundling efforts on the horizon,” Ives wrote in a memo sent to clients.

A legal battle between these two is highly-anticipated as stakes are very high for both firms. On one side, Apple has to make sure that others don’t follow suit and try to break away from the highly-profitable App Store ecosystem. In this context, a negative ruling would be a “major gut punch” for Apple.

“This is a high stakes game of poker being played as Apple needs to make sure the Epic challenge, which is very timely in light of anti-trust swirls and growing opposition to Big Tech within the Beltway, does not create a ripple effect which developers and regulators globally are watching carefully. We will be watching this trial closely and the ultimate ruling likely in the next three weeks for any ripple effects that could negatively impact the App Store fee structure going forward which we view as fortress-like despite the Epic noise. A negative ruling vs. Apple would be a major gut punch to the App Store crown jewel monetization engine,” concludes Ives.

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