Goldman keeps Apple at Buy, unfazed by Epic Games Store launch

On Friday, Goldman Sachs maintained its Buy rating and $275.00 price target on Apple shares (NASDAQ:AAPL). The stance comes after the announcement that Epic Games Store has launched on iOS within the European Union.

This move is in response to Apple's App Store platform changes, which were mandated to align with the EU's Digital Markets Act (DMA), effective January 26, 2024. Epic Games Store's debut on iOS is currently limited to the EU region, and it has also rolled out on Android devices globally.

The Epic Games Store has launched with three applications: Fortnite, Fall Guys, and Rocket League Sideswipe, with intentions to expand its offerings by enlisting third-party app developers in the future. This introduction marks the first significant alternative app marketplace on iOS, albeit restricted to the EU. Goldman Sachs views this development as having a minimal impact on Apple's business, considering the potential risks and adoption rates.

The analysis suggests that the presence of alternative app marketplaces like Epic Games Store in the EU may pose a risk of market share loss for Apple's App Store. However, the lack of differentiation among these alternative marketplaces is expected to slow their adoption by both developers and consumers.

Developers might find it financially unfeasible to distribute their apps on the Epic Games Store due to Apple's Core Technology Fee of €0.50 per first annual install. This fee structure is particularly challenging for ad-supported apps that do not currently incur platform fees.

From a consumer perspective, while exclusive games such as Fortnite could encourage downloads of the Epic Games Store, such exclusives are seen as a small segment of the broader app economy. The absence of additional exclusive third-party content could continue to hinder the Epic Games Store's adoption.

In other recent news, TikTok is challenging the US Department of Justice over a forced sale, asserting that their user data and content recommendation algorithm are securely stored on U.S.-based Oracle (NYSE:ORCL) cloud servers.

Meanwhile, Spotify (NYSE:SPOT) has updated its EU application on Apple devices to display various subscription plans and services' prices, following Apple's initial rejection of this request three months ago.

In financial news, South Korean retail investors continue to favor US stocks over their domestic market, with a strong preference for tech giants like Nvidia (NASDAQ:NVDA), Tesla (NASDAQ:TSLA), and Apple. Apple also leads the AI PC market, holding a 60% share with its Mac line that incorporates M-series chips for AI tasks.

In response to scrutiny from the European Commission, Apple has revised its App Store policies within the EU, allowing app developers to communicate with customers outside of their apps. These recent developments reflect the dynamic nature of the tech industry and its ongoing intersection with legal, financial, and regulatory landscapes.

InvestingPro Insights

As Goldman Sachs maintains a bullish stance on Apple with a $275.00 price target, current InvestingPro data shows Apple's market capitalization standing robustly at $3430.0 billion, reflecting its significant presence in the market. The company's P/E ratio, as of the last twelve months leading up to Q3 2024, is positioned at 33.76, which may suggest a premium valuation compared to the broader market. This is further evidenced by Apple's Price / Book ratio of 51.6, indicating a high valuation level relative to the company's book value.

Despite the potential challenges posed by the Epic Games Store's entry into the EU market, Apple's financial health appears solid, with a revenue growth of 0.43% over the last twelve months as of Q3 2024. This is complemented by a notable gross profit margin of 45.96%, which underscores the company's ability to retain a substantial portion of its sales as profit. Additionally, Apple's return on assets stands at an impressive 30.59%, reflecting efficient management of its assets to generate earnings.

For investors seeking further insights, InvestingPro offers additional tips, such as Apple's consistent dividend growth, with the company having raised its dividend for 12 consecutive years. Moreover, 21 analysts have revised their earnings projections upwards for the upcoming period, signaling potential optimism in Apple's future financial performance. To explore these insights in more detail, Apple investors and enthusiasts can access a wealth of additional InvestingPro Tips at https://www.investing.com/pro/AAPL.

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