Will antitrust investigations blunt Apple’s share price?

Apple’s [AAPL] share price has been flat so far this year, with gains of just 3.1% in the year to date (through 29 June). After a rapid surge in January, Apple’s share price fell to earth on 8 March when it closed at $116.36, 12.1% down for the year and 19.8% below its previous peak of $145.09, which it hit during intraday trading on 25 January.

In early April, Apple’s share price recovered to the $130 mark, but tailed off again with a slump to $122.77 on 12 May. There has been a steady rally in Apple’s share price since then, which has seen its price increase to close 29 June at $136.33.

This puts Apple’s share price 51.7% above its level in the year-ago period. However, the company is now facing the latest in a string of antitrust probes that are affecting many big tech stocks, and a negative outcome could have a serious impact on Apple’s share price.

 

Upsetting the Apple cartel

Germany’s Federal Cartel Office has opened an investigation into Apple’s “digital ecosystem,” and the extent to which this has been used to establish market dominance for the firm.

The App Store will reportedly be a primary focus for the regulator, given the degree of influence, it gives Apple over the actions of third parties. Complaints from app developers have centred on the requirement that developers use Apple’s own in-app purchase system, purchases through which generate a 30% commission for Apple. There are also complaints relating to iOS 14.5’s restrictions on user tracking as well as against Apple’s own apps being pre-installed on its products.

Andreas Mundt, head of the Federal Cartel Office, said in statement that “an ecosystem which extends across various markets” could indicate that a company is of “paramount significance across markets”, according to the Financial Times.

“Beside assessing the company’s position in these areas, we will, among other aspects, examine its extensive integration across several market levels, the magnitude of its technological and financial resources, and its access to data.”

“Beside assessing the company’s position in these areas, we will, among other aspects, examine its extensive integration across several market levels, the magnitude of its technological and financial resources, and its access to data” - Andreas Mundt, head of the Federal Cartel Office

 

The investigation follows probes by the regulator into big tech giants Facebook [FB], Google [GOOGL] and Amazon [AMZN] over recent months. This in turn is playing out against a backdrop of massively increased scrutiny of big tech firms on both sides of the Atlantic, with analysts such as Laura Petrone of GlobalData expecting more on the horizon.

“The EC’s [European Commission] proposed Digital Markets Act aims to constrain platforms so that they don’t become monopolies,” Petrone told Variety. “This is increasingly viewed as a desirable solution by antitrust regulators worldwide, and more recently the US House of Representatives has introduced five different bills seeking to tame the power of the world’s largest technology companies.”

The US’s stance on the big tech clampdown was emphasised by president Joe Biden’s promotion of antitrust legal scholar and staunch big tech critic Lina Khan to head the Federal Trade Commission. Her appointment on 15 June saw Apple’s share price slip 0.6%.

A May clash between Apple and Epic Games in California covered similar ground to the German probe, with the final verdict awaiting the announcement.

“This is increasingly viewed as a desirable solution by antitrust regulators worldwide, and more recently the US House of Representatives has introduced five different bills seeking to tame the power of the world’s largest technology companies” - Laura Petrone of GlobalData

 

Apple defended itself by saying its iOS app economy supports more than 250,000 jobs in Germany, with its App Store giving developers the scope to “share their passion and creativity with users around the world,” adding that the company looked forward to an “open dialogue” with antitrust authorities.

According to TheNew York Times, Tim Cook (pictured above), Apple’s CEO, delivered a “warning” about how “rushed” antitrust bills could disrupt its iPhone business.

Investors don’t appear to be fazed, however. Apple’s share price increased 1.4% on 21 June when the investigation was announced.

 

Generational gains

The investigations haven’t had a noticeable impact on the tech industry’s performance as a whole either. The Invesco QQQ Trust [QQQ], which tracks the tech-heavy Nasdaq index, gained 13.4% in the year-to-date (through 29 June), with gains of 12.2% in the month and a half since 12 May alone. Apple is the fund’s largest holding at 10.85% as of 29 June, so any lag on Apple’s share price would impact the fund’s performance.

With the App Store’s rise to dominance symbolising a generation that spends unprecedented amounts of time on their phones, it is appropriate that Apple is also held by the Global X Millennial Consumer ETF [MILN]. Apple’s share price is a smaller factor in this fund, however, it being the tenth-largest holding at 3.06% of net assets as of 29 June. The Global X Millennial Consumer ETF has outperformed the Invesco QQQ Trust in the year to date, gaining 16.1%.