Apple (NASDAQ:AAPL) pivots to the appellate courts after shares slid 2.63% when a U.S. judge ruled it flouted an App Store order in the Epic Games case.
Apple last week asked the Ninth Circuit to overturn Judge Yvonne Gonzalez Rogers’ injunction that forced the iPhone maker to drop its 27% commission on external payments and remove a warning screen scaring users away from link-outs.
In her Northern District of California opinion, Rogers wrote, This is an injunction, not a negotiation, warning that there are no do-overs once a party willfully disregards a court order. Apple said it will comply but strongly disagrees and will press its appeal.
The original Epic Games v. Apple lawsuit, filed in 2020, largely upheld Apple’s App Store rules but mandated support for third-party payment methods. Apple introduced a secondary checklist and continued to collect its full commission on redirected purchases.
Bank of America analysts warned that if Rogers’ remedy stands, billions of dollars in high-margin Services revenue could be at risk, underscoring how crucial App Store fees are to Apple’s $87 billion annual Services segment.
Investors should care because the App Store generates more than $70 billion in revenue each year, with Services now the company’s second-largest business behind the iPhone. A reversal on appeal could force Apple to relinquish its most lucrative digital toll booth, denting near-term earnings forecasts and accelerating margin pressure across its ecosystem.
The appellate court’s decisionexpected by year-endwill be a critical inflection point for Apple’s legal strategy and its Services growth outlook, and investors will be eyeing any hints in Apple’s quarterly update in late July for revised guidance on App Store economics.
This article first appeared on GuruFocus.
