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Should Investors Be Worried About Apple's Regulatory Woes?

Even though Apple's (NASDAQ: AAPL) third-party developers made more money than Apple did last year, its App Store remains a target of competitors and regulators. There have been a lot of antitrust allegations in the news lately, and investors might be worried about what could happen. On a Fool Live episode recorded on June 30, Fool contributors Brian Stoffel and Brian Withers discuss some recent stats from the company's App Store, sum up the antitrust activity, and discuss how the iPhone giant's shareholders should think about what's going on.

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Brian Withers: Moving on to Apple. I think people now are familiar with a little company called Apple. Its iOS App Store is thriving. It is just been a huge boon. Looking at over the last 12 months of 2020, an independent study showed that sales on the App Store ecosystem grew to $643 billion, up 24 percent despite hardships of COVID around the world. So Apple's developers are making more than double Apple's overall revenue.

Small developers have especially thrived on the platform. Those are ones that are defined as have fewer than a million downloads, and less than $1 million of earnings across all apps. This group of small developers makes up 90 percent of all developers on the platform. A quarter of those have grown their earnings for 25 percent each year for the past five years. What's cool is these developers get earnings typically from more than 40 different countries.

Apple is continuing to fuel the growth with its App Store, with even more powerful application software development kits. Its augmented reality software development kit is now available. It's super cool. You take a couple of pictures, and then all of a sudden you have a 3D image that you can manipulate on the screen. These are really powerful applications.

I just continue to be amazed at the results that the Apple can bring, and its amazing scale it can bring, and the global reach it has.

Brian Stoffel: You didn't even throw in the heartwarming story-

Brian Withers: Oh I didn't.

Brian Stoffel: -that you said you were going to include about an App designed to help people who are blind or have low vision see things. I mean, truly there's some pretty neat things going on within this App Store.

But here's my question. The App Store's what you're talking about. The App Store also happens to be the major thing that's in the crosshairs of regulators, both in the United States, and in Europe. Because they say that by owning the App Store, and then also developing their own apps or having partnerships with certain companies that they might get more revenue from, they are favoring themselves over smaller players. Now what you just said makes me think that maybe that's not the case. How should investors think about this?

Brian Withers: Yeah. It seems like everybody is gunning for Apple right now, the U.S. government, there's courtroom battles. Epic Games, the maker of Fortnite has been the most in the news. They've sued in the United States, Europe, Australia, and the U.K. for antitrust. Mainly because Epic can't get access to the Apple ecosystem in the iPhones without going through Apple and paying a 30 percent cut.

Now, Apple, you may think, "Oh, well that's just the way they can do that off on the side." But Apple even prohibits what they call sideloading, and it really forces developers to have to use the App Store not only for initial sales on the platform, but ongoing in-app purchases.

There have been a number of complaints by Spotify, Facebook, Epic Games, and the courtroom battle in the U.S. just concluded at the end of May, and we expect a decision in the next couple of months. In Europe, the European Commission issued charges that Apple violated antitrust laws. There's some bills going through Congress. One of the provisions known as the American Innovation and Choice Online Act could further limit Apple's ability to control their App Store, the limit to access there. In Europe, there's an act going through the EU called the Digital Markets Act, which also limits provisions for sideloading.

The question is, there is all this stuff going on. Should investors be worried? I don't think so. [laughs] Looking back at the Microsoft antitrust case, and I encourage you if you are an Apple's shareholder, go look this up. This thing drug on for years. Even after it was initially decided, Apple [meant to say Microsoft] appealed, and eventually won. I mean, it was almost like this decade-long battle.

At the end of the day, Apple [meant to say Microsoft] ended up agreeing to some different things that helped at least allay the fears that they were being a massive monopolistic entity. But in the meantime, [laughs] while the court battle was going on, they continued their behavior.

I see a continued long, drawn-out battle and potentially Apple having to make changes to its ecosystem. But these are things that are kind of priced into the stock right now. Even if they came out with egregious things that Apple would have to do, Apple is obviously going to appeal them. I think this is going to go on for a long time. I wouldn't worry necessarily if you're an Apple shareholder right now.

Brian Stoffel: I agree. I think that without having really any opinion on whether Apple's guilty or not, when you get to be a $2-TRILLION company, this is what happens.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Brian Stoffel has no position in any of the stocks mentioned. Brian Withers has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Facebook, Microsoft, and Spotify Technology. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.


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