The US Department of Justice filed a lawsuit against Apple on Thursday, accusing the company led by CEO Tim Cook of engaging in anti-competitive business practices. The allegations include claims that Apple is blocking competitors from accessing certain iPhone features and that the company's actions are impacting the “stream of speech” through its streaming service Apple TV+.
However, even if the Justice Department proves any of the allegations, Apple is unlikely to face fundamental changes for years, as history shows that such lawsuits often take a long time to reach trial, let alone reach a resolution. The Justice Department's ongoing case against Google, which was filed in 2020, doesn't go to trial until 2023, with no damages or financial implications expected for up to another two years.
This is not the first time that Apple has faced legal action from the Department of Justice. In 2012, the agency sued Apple for conspiring with publishers to increase e-book prices, a suit that was not settled until 2016.
“Precedent suggests that it will take three to five years to resolve a complaint, including appeals,” Bernstein analysts wrote in a note.
Morgan Stanley analysts said on Friday that the current lawsuit could also favor Apple, as a judge previously ruled on several similar claims in the Apple vs Epic case, with the ruling stating that Apple does not violate antitrust laws. The Justice Department filing also made little mention of Apple's lucrative search deal with Google and did not cite the App Store as one of the five main examples of monopolistic behavior.
Previous major antitrust cases. (Photo: Bernstein)
Bernstein analysts added: “While the DOJ's accusations focus on the iPhone, we do not see that the potential remedy would materially impact Apple financially or undermine the iPhone franchise: at worst, Apple pays a fine, easing restrictions on competition across the iOS platform, which we believe would be It has limited impact on iPhone user retention or services revenue.
Which led Morgan Stanley analysts to conclude that the Justice Department's lawsuit creates “more headline risk than near-term event risk” for Apple.
They added:
Stated differently, yes, this lawsuit creates a stock surplus, but the market has a short-term memory and in our view, fundamentals are more likely to drive Apple's stock price over the next 12 months (and several years), rather than this lawsuit. We can cite a number of historical cases in which companies outperformed in the midst of lawsuits threatening their core product/differentiated value proposition despite the legal burden: 1) Apple/Epic, where the stock outperformed by 15 points in the 18 months following the first decision Epic's legal filing threatening the App Store takes prices in August 2020, and 2) USA vs. Google, with the stock nearly doubling since the Justice Department first announced its investigation into Alphabet's search practices. Our view is that regulation/litigation represents a greater long-term risk for Apple than it has historically, but the stock's fundamental drivers for the foreseeable future will almost certainly be fundamentals-based, especially since this lawsuit may not be resolved until at least 2028 (or Until 2030) based on previous cases.
