Apple faces significant challenges stemming from Epic, Google cases: Evercore

Apple (NASDAQ:AAPL) faces significant challenges in its lucrative Services business, due to its ongoing legal battle with Epic Games and Google’s (NASDAQ:GOOG)(NASDAQ:GOOGL) U.S. Department of Justice lawsuit, according to Evercore ISI.

“Google pays Apple $20-24B/year in order to be the default search engine on Safari and we estimate around 50% of this is US based, and therefore at risk from the ongoing DOJ lawsuit,” said Evercore analysts, led by Amit Daryanani, in an investor note.

“The payment is a revenue sharing agreement where Google shares a portion of the money it makes on advertising as a result of Safari searches,” Daryanani added. “The rise of AI search options has raised concerns that revenue from this agreement will start declining given Apple’s testimony in the case indicated Safari search volume declined in April for the first time ever.”

Earlier this month, the Justice Department proposed, under its remedies, to make Google sell its ad manager and also its ad exchange to curb the company’s anticompetitive practices. The company disagreed with the court’s ruling on Google Ad Manager and said it would appeal the decision.

At the same time, Apple also faces risks to its App Store, which is a significant contributor to its Services revenue. This is due to the litigation with Epic, the creator of the extremely popular game Fortnite. Services generated $96.17B in fiscal year 2024 and $85.2B in fiscal year 2023.

“As part of the ongoing AAPL vs. EPIC lawsuit, the judge ruled that Apple had to allow third-party transactions on iOS and it was not able to charge a fee on those transactions,” Daryanani said. “At risk is the ~$7B we estimate Apple earns from charging fees to US developers. Assuming that $7B fully went away, it would imply a 6% hit to EPS, but we think the actual impact will be smaller.”

Evercore also said it believes there is a chance for the “judge’s decision to be overturned on appeal given the argument that their decision amounts to an unjust seizure of private property.”

Evercore maintains its Outperform rating and $250 price target on Apple.

“The April 2025 court ruling explicitly prohibits Apple from obstructing developers’ ability to direct users to external payment systems,” said Seeking Alpha analyst Oliver Rodzianko. “This ruling overturns Apple’s efforts to levy a new 27% commission on transactions processed externally, marking a significant legal setback. If developers broadly adopt external payments, Apple could face substantial erosion of its multi-billion-dollar U.S.-based App Store revenue stream.”