The dispute between Epic Games and Apple (NASDAQ:AAPL) over Fortnite app billing looks like just a flesh wound for AAPL stock. However, the wound may fester, leading to an even greater headwind for the popular “i”-everything company.
Epic is one of the first legitimate contenders to challenge the 30% share Apple takes from developers who use its app store. Although it probably can’t topple the trillion-dollar tech company, it could give a stronger voice to other developers.
Backed by more than 350,000 million users in its Fortnite game alone, Epic doesn’t struggle as many indie developers do. However, it is still suing Apple (and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)) for what it sees as unfair billing practices.
If it succeeds, it could significantly impact a key revenue stream for Apple. Its app store revenue has fortified the bullish case for AAPL stock over the years while iPhone sales leave the spotlight. The lawsuit could throw all of that out the window.
Apple Evades Stone Throwers … For Now
In Epic’s words, “Apple is bigger, more powerful, more entrenched and more pernicious than monopolies of yesteryear. Apple’s size and reach far exceeds that of any technology monopolist in history.” This sentiment is nothing new, with many lobbing antitrust allegations toward the company for years.
Now with a much bigger name leading the accusations — on top of preexisting scrutiny — investors are starting to wonder: Is this a real threat to AAPL stock?
Although the allegations are serious, Apple’s stock remains relatively unaffected (it’s up 0.01% after banning the Fortnite app). In fact, Apple has already shot back by threatening to remove Epic’s developer privileges for iOS and Mac. This would include use of its Unreal engine by other developers. According to Epic, the ban would be “catastrophic” for professionals in many different industries — not just gaming — who use apps designed on its engine.
Apple’s retaliation is powerful, but it might not go into effect if the court rules in favor of Epic as the lawsuit progresses. And that’s why investors shouldn’t just dismiss it as a mere “flesh wound” for Apple.
As mentioned, Apple’s app store revenue is now a key component of its success. In fact, The Verge points out that “[t]he app store was nearly 40 percent of Apple’s total service revenue in 2019.” Any threats to this business should be taken seriously.
According to CNN, a victory by Epic could mean that Apple would no longer get a piece of in-app purchases. It could also prevent “Apple and Google … from bundling payment services with their app stores, allowing developers to be paid directly.” This would force Apple to restructure its business model for the Store, which involves more than $500 billion in commerce.
An Epic victory would certainly prove to be a major headwind against AAPL stock. However, as mentioned earlier, Apple knows this, and it isn’t going down without a fight.
The Bottom Line for AAPL Stock
It’s too soon to suggest that Apple is doomed and bound to lose the case. As such, we’ll have to wait and see how it unfolds before making sound investment decisions. But in a world where many companies are pitted against it, Epic is one that can hit much harder than most.
It has the ability to “out-cool” Apple with its massive community of gamers. In fact, it has already launched a marketing campaign against Apple and Google to win their favor. Analysts believe it has the potential to “weaponize” this community to take action.
While some might not take that threat seriously, the gaming community is no stranger to rallying against forces it deems unjust. A tech behemoth that’s threatening the developers of games it loves is certainly not immune to its grasp. And gamers have repeatedly proven their ability to enact change after making an uproar.
That may not prove to be the case with the Apple dispute, however. After all, Epic has faced its own challenges with the gaming community. Regardless, it places Apple in an unexpected culture war with unexpected consequences.
None of that is beneficial for AAPL stock.
While Epic might not win the case, all of this hints at another possible detriment to Apple. Part of its long-standing advantage has always been its “exclusivity” — its unique style and brand. With time, however, the company is losing that edge. It’s becoming a part of “the system” with which it once manged to disassociate itself with. Ground-breaking innovation is no longer the primary driving force for Apple. The marketing campaign by Epic hints at this now familiar narrative around Apple.
It’s unlikely that Apple is going anywhere, but in the long run it could lose whatever remaining luster it once had. It’s a possibility that longer-term investors ought to consider as disputes like these continue to unfold.
Robert Waldo has been a web editor for InvestorPlace.com since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.
