The Google Play logo is displayed on a screen.
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Wall Street analysts began Monday to give initial reactions to how a recent decision on Epic’s lawsuit against Apple could affect Google.
On Sept. 10, a judge ruled that Apple can’t ban developers from providing links to consumers to pay for purchases from the app outside the App Store, skipping Apple’s 30% fee. Although the judge did not consider Apple a monopolist, the company’s shares fell 3% for the news and Google fell as much as 2%.
Epic sued Google in 2020 for similar allegations. This case has not yet gone to trial and it is unclear when it will arrive. However, Google is in a slightly different position than Apple. Android allows third-party app stores while Apple’s iOS doesn’t, but the Google Play Store, like Apple’s App Store, doesn’t allow developers to link to other payment methods.
Google does not separate its revenue from the Play Store. However, a recently unsealed lawsuit showed the company generated $ 11.2 billion in revenue, $ 8.5 billion in gross profits and $ 7 billion in operating revenue from the Google Play Store last year. This includes in-app purchases and in-app advertising. Based on these figures, JPMorgan estimates that Google Play’s non-advertising revenue will total approximately $ 14 billion in 2021, approximately 5% of Alphabet’s total revenue.
Analysts at Credit Suisse, Raymond James, Bank of America, JPMorgan and Morgan Stanley say the Epic ruling against Apple indicates that there is a risk that Google may also allow developers to promote other payment methods or alternative solutions to Google commissions.
“Google Play’s revenue problems are growing,” Bank of America analysts said Monday in a note to investors.
Bank of America analysts said it was good news for Google that Apple’s App Store would not be governed as a monopoly, but said Google is not yet out of the light. Analysts warned that Google’s Android deals with app companies and computer makers are more complex and therefore subject to more anti-competitive control than Apple’s. But they maintained a Buy on Alphabet action, arguing that any regulation of Google’s app store could also help it reduce the traffic acquisition costs Apple pays.
Credit Suisse analysts said that in a worst-case scenario, where Google earned 0% of Play Store commissions, it expects the company’s shares to trade at around $ 3,200 per share by 2022 against $ 3,400 if there was no success in app revenue.
Google’s core business can protect great potential successes
Credit Suisse analysts Raymond James, Bank of America, JPMorgan and Morgan Stanley agreed that Google’s other major revenue contributors, such as Search and YouTube, would reduce the financial success Google could have if it had to adjust. the way he collects Play Store money.
Raymond James analysts said Google could lose 4% of its gross profits in 2022 if it reduces its developer share by 50%. “Our conclusion is that while there is a modest risk to the estimates, we believe it will take a while to develop (especially with possible appeals) and Google remains well positioned” in the face of the risks, as its basic advertising revenue is strong, Raymond James analysts said in a note to investors. They added that developers would likely spend any savings on Play Store rates on advertising.
Morgan Stanley analysts said any potential change in the way Google collects money from developers will likely only affect its larger app partners and therefore minimize the impact on Google.