Last Thursday was a big day for Apple (NASDAQ:AAPL) stock – but not in a good way.
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As Bloomberg (among others) reported, the U.S. Department of Justice joined with 16 state attorneys general to sue Apple Thursday for violating antitrust laws. Apple investors promptly panicked, selling off shares of the iPhone-maker by 4%, erasing about $113 billion in market value.
Broadly speaking, DoJ accuses Apple of violating Section 2 of the Sherman Anti-Trust Act, which prohibits activities that restrict interstate commerce and competition, yielding monopoly powers for Apple. The focus of the Department’s ire seems to center on Apple’s App Store and its policy of charging 30% commissions on apps downloaded via the App Store, and also on in-app purchases. DoJ calls this anticompetitive, and says Apple further stifles competition by writing contracts that suppress cloud streaming apps that attempt to lessen companies’ dependence on App Store for their sales.
DoJ is also upset with how Apple designs its products and software to make it harder for other companies’ products and software to integrate with Apple. As the Department argues, this hurts the quality of third-party apps when used on Apple devices, even as it raises privacy and security for concerns for users of non-Apple devices.
Wedbush’s 5-star analyst, Daniel Ives, scrambled to make heads or tails of what’s happening – and what it means for investors in Apple stock.
“While the potential outcomes and legal settlement are still unclear for this lawsuit, we ultimately believe that the resolution will not be complete for years similar to Microsoft in the 90s and as these typically play out that the bark will be worse than the bite,” Ives opined.
The most likely scenario, according to Ives, is that Apple settles DoJ’s lawsuit, pays a “significant” fine, and makes at least some changes that permit competing companies’ software to integrate with Apple’s own.
“The headline risk is added to the Apple story as this case will not be resolved in the short term and Cupertino will be under a further microscope both in the Beltway and Brussels. Overall, we believe that the most likely outcome is this lawsuit will drag for many years ultimately leading to Apple having to make some minor changes,” Ives summed up.
For the time being, Ives is sticking with his Outperform (i.e. Buy) rating on Apple stock, while his $250 price target implies ~45% upside from current levels. (To watch Ives’ track record, click here)
Looking at the consensus breakdown, the optimists out gun the doubters. Based on 17 Buy recommendations, 9 Holds, and a single Sell, Apple stock has a Moderate Buy consensus rating. Given the $203.87 average price target, the shares are anticipated to be changing hands for ~18% premium a year from now. (See AAPL stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
