The U.S. Department of Justice filed a lawsuit against Apple on Thursday, accusing Apple, led by CEO Tim Cook, of engaging in anti-competitive business practices. Allegations include that Apple prevented competitors from using certain iPhone features and that Apple's actions affected the "stream of speech" of the streaming service AppleTV+.
However, even if the Justice Department proves any of these allegations, Apple is unlikely to face substantive changes for several years, as history shows that such lawsuits often take a significant amount of time to get to trial, let alone resolve. The Google lawsuit currently under trial by the U.S. Department of Justice was filed in 2020 and will not go to trial until 2023. It is expected that there will be no remedies or economic impact for up to two years.
This is not the first time Apple has faced legal action from the Department of Justice. In 2012, the agency sued Apple for conspiring with publishers to raise e-book prices, a lawsuit that was not settled until 2016.
"Precedent suggests that resolution of this lawsuit, including appeals, will take three to five years," Bernstein analysts wrote in a note.
Morgan Stanley analysts said on Friday that the current lawsuit may also be beneficial to Apple, because in the Apple v. Epic case, the judge has already ruled on many similar accusations, ruling that Apple did not violate antitrust laws. The Justice Department's documents only briefly mentioned Apple's more than 10 billion US dollars in search transactions with Google, and did not mention the App Store as one of its five major cases of monopolistic behavior.
Bernstein analysts added: "While the DOJ's charges focus primarily on the iPhone, we do not believe potential remedies will have a material financial impact on Apple or undermine the iPhone franchise: the worst-case scenario is that Apple pays a fine and relaxes restrictions on competition across the iOS platform, which we believe would have limited impact on iPhone user retention or services revenue."
Morgan Stanley analysts believe that the Justice Department's lawsuit brings "more headline risk to Apple than near-term event risk."
They added:
In other words, yes, the lawsuit has caused stock price overhang, but the market's memory is short-term, and in our view, fundamentals are more likely to drive Apple's stock price higher over the next 12 months (or even years) than the lawsuit. We can cite some historical cases where companies' stock prices have outperformed despite lawsuits threatening their core products/differentiating value propositions: 1) Apple/Epic, which outperformed the market by 15 points in the 18 months after Epic first filed legal documents in August 2020 threatening a cut of the App Store; 2) U.S. vs. Google, where Google's stock price has nearly doubled since the Justice Department first announced an investigation into Alphabet's search practices. Our view is that regulation/litigation is a greater long-term tail risk for Apple than it has historically been, but the fundamental driver of Apple's stock price for the foreseeable future will almost certainly be fundamentals, especially considering that this litigation may not be resolved until at least 2028 (or even 2030) based on past cases.