Wall Street Lunch: EU Fines Apple Over Music Streaming Rules

Summary:

• Apple fined €1.8 billion by the European Commission for “abusive” App Store rules regarding music streaming providers.
• JetBlue and Spirit agree on termination of merger.
• Citi screens for the stocks with the most insider buying and selling.

Listen below or on the go on Apple Podcasts and Spotify

The EU fines Apple $1.95B over App Store’s rules for music streamers. (0:16) Goldman rates Super Micro Neutral but the stock has already surged through its target. (4:02) Smaller Whole Foods Market Daily Shop stores to debut. (4:35)

The following is an abridged podcast

Our top story so far

Apple (NASDAQ:AAPL) was hit with a fine in the amount of €1.8 billion, or $1.95 billion, as the European Commission said its App Store rules for music streaming providers, notably Spotify (SPOT), are considered “abusive.”

Executive Vice-President of the EC Margrethe Vestager said: “For a decade, Apple has restricted music streaming app developers from informing their consumers about cheaper options available outside of the app.”

“Apple did so by restricting app developers’ ability to inform users of Apple devices about alternative, cheaper options to purchase music available on the internet outside of the Apple ecosystem. This is illegal. And it has impacted millions of European consumers, who were not able to make a free choice as to where, how, and at what price to buy music streaming subscriptions.”

Apple issued a statement on its website, criticizing the decision. It said: “The decision was reached despite the Commission’s failure to uncover any credible evidence of consumer harm, and ignores the realities of a market that is thriving, competitive, and growing fast.”

Apple also specifically called out Spotify by name in its statement, noting the Stockholm, Sweden-based company has 56% of the European streaming market and pays Apple “nothing for the services that have helped make them one of the most recognizable brands in the world.”

Also in Apple news, Evercore removed the stock from its tactical outperform list citing December earnings. Apple topped estimates, but concerns about the company’s presence in China weighed. China revenues fell 12% year-over-year as weakness in the region “was more around wearables and iPads — reflecting a weaker consumer spending environment,” Evercore said.

Despite “the disappointment around (March quarter) guide, we think iPhone units are largely flat,” they added.

Apple also announced new MacBook Air models with 13-inch and 15-inch screen sizes with their own M3 chip. The new models offer 18 hours of claimed battery life, faster Wi-Fi 6E radios, a 1080 HD camera, and support for up to two external displays.

The 13-inch model starts at $1,099 and the 15-inch model start at $1,299.

In today’s trading

Stocks are slightly lower to kick off the week, with the major averages off less than 0.2%. But equities are in sight of a historical run.

Deutsche Bank’s strategist Jim Reid says: “We’re currently on a run that you may not see again in your lifetimes. The S&P 500 last week completed a run of 16 positive weeks out of the last 18 for first time since 1971. If this carries on for another week it’ll be 17 out of 19 for the first time since 1964. A remarkable and relentless period of performance.”

Treasury yields are moving higher. The 10-year is above 4.2% and the 2-year is back above 4.6. Traders have one eye on Fed chief Jay Powell’s Congressional testimony, with the first appearance on Wednesday, and the other eye on the Friday jobs report.

Among active stocks

Sea Limited (SE) stock surged after the e-commerce company’s fourth quarter results beat estimates. The Singapore-based company, which operates the e-commerce platform Shopee, saw its revenue grow about 4.8% year-over-year to $3.6B.

Sea’s Chairman and CEO Forrest Li said that the company achieved its first full year of annual profit since its IPO in 2017.

JetBlue (JBLU) rose after it reached an agreement with Spirit Airlines (SAVE) to terminate their 2022 $3.8 billion merger agreement. Shares of Spirit tumbled.

Under the pact, JetBlue will pay Spirit a $69 million termination fee and all outstanding matters related to the transaction will be mutually released. The deal termination comes after a federal judge in January blocked the combination of JetBlue and Spirit on antitrust grounds. Although the airlines were appealing the decision, many experts believe it will be an uphill battle to have the appeals court reverse the lower court’s decision.

And Goldman Sachs initiated coverage on Super Micro Computer (SMCI) shares with a Neutral rating. But shares of the AI server company have already blown past Goldman’s price target of $941 on enthusiasm for its inclusion in the S&P 500.

Analyst Michael Ng wrote Super Micro is an “AI winner” as it has a large roster of customers using GPU-specialized servers that have boosted its revenue and earnings power over the past two years.

Still, he says the stock is already fairly valued, trading largely in line with Nvidia (NVDA) at 32x earnings.

In other news of note

The Whole Foods grocery chain plans to open new small-format stores in urban regions as it looks to tap into a new segment. The new mini-stores will be called Whole Foods Market Daily Shop and will range in size from between 7,000 to 14,000 square feet vs. the average Whole Foods store size of about 40,000 square feet.

Whole Foods Market Daily Shop will not have salad bars or meat counters, but will feature many of the same products as normal stores, including fresh produce and frozen food. The first location is planned for the Upper East Side in Manhattan by this fall. Whole Foods has signed a total of five leases in New York City for the concept and also has plans to explore expanding into other cities across the country. A national launch could be a threat to Sprouts Farmers Market (SFM) and Trader Joe’s.

Whole Foods officials noted that the mini-stores will have cashiers, self-checkout stations and the Amazon One palm payment service.

And in the Wall Street Research Corner

Citi is looking at insider transactions, noting that buyers and sellers have stepped back since the stock rally in 2023 unfolded.

“Interestingly, both (buying and selling) have had some relationship to index level forward performance historically,” strategist Scott Chronert wrote in a note. Over “the last ten years there was a decent +0.51 correlation between the number of insider buyers and 12M forward returns.”

“As for the number of insider sellers, there is some evidence that their timing is good but the correlation is weaker at -0.17. Taken together, with more weight on the insider buying measure, there is a mixed signal that generally implies lower but positive forward return expectations.”

The team screened for companies with the largest amount of insider buying/selling as a percentage of market cap over the past 6 months.

Among the stocks with the most buyers are VF Crop (VFC), Carnival (CCL) and Enphase Energy (ENPH). The stocks that saw the most insider selling include NVR (NVR), Airbnb (ABNB) and Amazon (AMZN).

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