Apple iPhone expected to boost sales, but app store faces regulatory risk

July 27 (Reuters) – Strong sales of 5G iPhones and services like the App Store and Apple Music are expected to boost growth at Apple Inc (AAPL.O), which reports its results on Tuesday, but some investors will listen to the strategy to ward off antitrust enemies.

The service company faces lawsuits, regulatory review, including from an empowered US Department of Justice, and a slew of pending laws in the US and Europe to reduce its commissions on apps and make other changes.

“We believe government action (via antitrust laws, executive order, and legislation) poses the greatest risk to Apple stocks,” wrote Tom Forte, analyst at DA Davidson & Co, in a note. to customers, adding that he hoped Apple executives would address the risks when the company’s earnings call on Tuesday.

Analysts expect Apple’s service sales to rise 24.1 percent to $ 16.33 billion, more than a fifth of its expected overall sales of $ 73.30 billion, according to the reports. IBES data from Refinitiv as of July 26.

Last year, when “Fortnite” maker Epic Games sued Apple for its App Store commissions, Cowen & Co analyst Krish Sankar estimated that Apple’s App Store provided around $ 6. % of its total income and between 10% and 15% of its profits.

Apple also runs the risk that the US Department of Justice will ban Alphabet Inc’s (GOOGL.O) Google from paying to be the default search engine on the iPhone, CFRA Research’s Angelo Zino wrote in a note to research last week. Justice Department officials cited estimates that Google pays Apple $ 8 billion to $ 12 billion a year.

For now, analysts expect the company to experience a boom in iPhone sales for its fiscal third quarter, with sales up 28.7% to $ 34 billion, Refinitiv data shows. as of July 26, by far the biggest contributor to sales.

JP Morgan analyst Samik Chatterjee wrote in a note last week that the growth in Apple’s service business has resulted in structural change and higher valuation for the company, with stocks trading close to 30 times the profits. As of 2019, stocks were trading consistently below 20 times earnings, with investors remaining cautious about the company’s heavy reliance on iPhone sales.

Reporting by Stephen Nellis in San Francisco; edited by Peter Henderson and Richard Pullin

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