Analysts at Bernstein said in a note Thursday that the stakes for Apple (NASDAQ:AAPL) are material in regard to its recently announced changes in the European Union (EU).
Recently, Apple announced EU changes to comply with the EU's Digital Markets Act (DMA). The changes go into effect March 7 and allow for side-loading of apps and offer a choice screen for web browsers.
The analysts explained the changes potentially impact an estimated $3.6 billion in EU services revenues from advertising/payments from Google and $1.7 billion in EU revenues earned from the App Store. Collectively, Bernstein estimates that these amount to ~4% to 5% of Apple's global operating profits.
"Apple appears to have chosen to give up some App Store revenues (we estimate $370M) through a new commission structure to avoid potentially higher revenue losses," the analysts noted, who have a Market Perform rating and $195 price target on the stock.
However, Bernstein believes Google will continue to pay Apple "one way or another."
"While a material percentage of users could potentially pick Chrome/alternative web browsers on iOS when prompted, we believe that Apple will still capture payments from Google for searches done via Chrome," the analysts added.
Overall, despite the DMA regulation trying to create increased competition, Bernstein feels Apple's remedies will likely result in most apps continuing to be downloaded via the App Store.
"The move underscores our long-held contention that Apple's position and ecosystem are very powerful and that regulators are unlikely to mandate what pricing or commission rates will be," the analysts wrote.
"That said, we see risk that there could be pushback on Apple's moves from (1) the EU, who may view them as anti-competitive/not in spirit of its ruling; & (2) app developers who could look to press for equal, lower commission rates globally."