Apple Investigated By UK Regulator Over App Store Rules

The UK’s antitrust regulator has launched an investigation into Apple Inc. following complaints that the iPhone maker’s terms and conditions for software app developers are unfair and anti-competitive.

Specifically, the UK’s Competition and Markets Authority (CMA) will probe whether Apple (AAPL) plays a dominant role in the distribution of apps on the iPhone maker’s devices in the UK. Additionally, the investigation will center around whether Apple imposes unfair or anti-competitive terms on developers using the App Store, which result in users having limited choice or paying higher prices for apps and add-ons.

“Millions of us use apps every day to check the weather, play a game or order a takeaway,” commented CMA chief executive Andrea Coscelli. “So, complaints that Apple is using its market position to set terms which are unfair or may restrict competition and choice – potentially causing customers to lose out when buying and using apps – warrant careful scrutiny.”

Software developers have been complaining that they can only distribute their apps to iPhones and iPads via the App Store. To that end, developers who offer ‘in-app’ features, add-ons or upgrades are forced to use Apple’s payment system, rather than an alternative system. What’s more, Apple charges a commission of up to 30% to developers on the value of these deals or any time a consumer buys their app.

As such, the App Store is the only channel for developers to distribute third-party apps on iPhones and iPads, and the only way for Apple customers to have access to them.

“The App Store has been an engine of success for app developers, in part because of the rigorous standards we have in place — applied fairly and equally to all developers — to protect customers from malware and to prevent rampant data collection without their consent,” Apple said in a statement.

This is not the first time Apple has faced scrutiny over the App Store terms and commission fees. The European Commission (EC) has four open antitrust probes into Apple, including three open investigations into the tech giant’s App Store.

The iPhone maker’s shares have ballooned over 60% over the past year as the coronavirus pandemic has created opportunities for companies like Apple who are weathering the crisis relatively well and are looking to increase their reach and boost market share through expansion into music, video, gaming, and fitness subscriptions. (See Apple stock analysis on TipRanks)

Evercore ISI analyst Amit Daryanani last month reiterated a Buy rating on the stock with a $163 price target (34% upside potential), as he argues that ongoing strength in app downloads point to “an increasing likelihood of upside to consensus estimates.”

Daryanani said that App Store revenue increased 30% in February for “another strong month” and estimated that App Store developer revenue generated $4.4 billion in the quarter, up 30%, after growth of 40% in January and 31% in December.

Currently, the rest of Street has a cautiously optimistic outlook on the stock. The Moderate Buy consensus rating is based on 19 Buys, 5 Holds and 2 Sells. Meanwhile, the average analyst price target of $150.25 indicates 23% upside potential to current levels.

Meanwhile, TipRanks’ Hedge Fund Trading Activity  tool shows that confidence in Apple is currently Very Negative as 31 hedge funds trimmed their cumulative holdings in AAPL by almost 53.9 million shares in the last quarter.

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