DOJ Lawsuit Against Apple: Limited Near-Term Impact but Captivating Headline
The U.S. Department of Justice (DOJ) has filed a lawsuit against Apple, accusing the tech giant of engaging in anti-competitive business practices. Led by CEO Tim Cook, Apple is facing allegations that it restricts competitors from accessing certain iPhone features and that its actions impact the “flow of speech” through its streaming service, Apple TV+.
While the lawsuit has generated significant attention, experts believe that it will have limited near-term impact on Apple. History has shown that such legal battles can take years to reach trial and even longer to reach a resolution. For example, the DOJ’s ongoing case against Google, filed in 2020, only went to trial in 2023, with no expected remedies or financial implications for up to two more years.
This is not the first time that Apple has found itself facing legal action from the DOJ. Back in 2012, the agency sued Apple for colluding with publishers to increase ebook prices. It took four years for the lawsuit to be settled in 2016.
According to analysts at Bernstein, it is likely that the resolution of the current complaint against Apple will also take several years, including appeals. They suggest that it could be three to five years before any significant changes occur. On the other hand, Morgan Stanley analysts argue that the lawsuit may actually work in favor of Apple. They point out that many similar allegations have already been ruled on in the Apple vs Epic case, where a judge stated that Apple does not violate antitrust laws. Additionally, the DOJ filing does not mention Apple’s App Store as one of its principal examples of monopolistic behavior.
The Bernstein analysts further note that even if the DOJ’s charges result in remediation for Apple, it is unlikely to have a material impact on the company’s finances or undermine the iPhone franchise. They speculate that the worst-case scenario for Apple would be paying a fine and loosening restrictions for competition across the iOS platform. However, they believe that this would have limited impact on iPhone user retention or services revenues.
Taking all these factors into consideration, Morgan Stanley analysts conclude that the DOJ’s lawsuit poses more of a headline risk than a near-term event risk for Apple. They emphasize that while the lawsuit may create a temporary overhang on the company’s stock, it is the fundamentals that are likely to drive Apple’s stock price over the next 12 months and several years. They highlight previous instances where companies facing litigation have outperformed in the market, such as Apple’s case with Epic and the USA vs. Google investigation. Therefore, they suggest that the underlying drivers of Apple’s stock are likely to be fundamentals-based, especially given that this lawsuit may not be resolved until at least 2028 or even 2030 based on past cases.
In conclusion, while the DOJ’s lawsuit against Apple has captured attention with its allegations of anti-competitive practices, experts believe that the impact on Apple in the near term will be limited. Legal battles of this nature often take years to reach a resolution, and Apple has previously faced similar legal action with successful outcomes. As investors evaluate the situation, it seems that the market will be driven by Apple’s fundamentals rather than the lawsuit itself. While regulation and litigation present long-term tail risks for Apple, it is expected that the company’s stock will continue to be influenced by its core products and value proposition in the foreseeable future.