Apple Inc’s App Store had operating margins of nearly 78% in fiscal 2019, according to expert witness testimony from Epic Games Inc based on documents obtained from iPhone maker .
The figure comes from Ned Barnes, a financial and economic researcher, who said he obtained documents “prepared by Apple’s corporate financial planning and analysis group and produced from the files of Apple’s CEO, Tim Cook ”.
Apple challenges the accuracy of Barnes’ calculations – and urges a judge to restrict public discussion of App Store earnings – as companies embark on a high-stakes lawsuit in Oakland, Calif., On Monday.
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Epic, the creator of the hit game Fortnite, is trying to show that the App Store is run like a monopoly with a developer commission of up to 30%, while Apple insists it isn’t abusing its market power.
Epic is also suing Apple in the UK and Australia, while Apple is under scrutiny by antitrust regulators in the US and abroad.
The companies are relying heavily on duels between economists to make their case before U.S. District Judge Yvonne Gonzalez Rogers, who is leading the three-week trial without a jury.
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As part of the pre-trial information-sharing process, Barnes said an Apple employee told him figures in the company’s internal documents did not give the full picture. Barnes said he then performed additional calculations, which resulted in higher margin estimates of 79.6% for 2018 and 2019.
In a statement on Saturday, the Cupertino, Calif.-Based tech giant said that “Epic’s expert calculations on App Store operating margins are simply wrong and we can’t wait to refute them.” before the courts ”.
Barnes said he also obtained documents prepared within Apple that show profit and loss estimates for fiscal 2020. He said Apple has been tracking App Store earnings for years and that he had also obtained such declarations for 2013 to 2015.
Apple generates revenue from the App Store by charging developers a 15% or 30% commission for paid app downloads, in-app purchases, and subscriptions.
Analysts estimate that Apple’s App Store margins may have increased since 2019. Sensor Tower estimates that the App Store generated $ 22 billion in commissions last year for Apple, while the analyst Bernstein’s Toni Sacconaghi believes Apple will run the App Store this year with 88 percent gross profit.
Apple executives said the company does not follow these profit and loss statements for individual business units.
“When we look at the App Store, it’s not an independent business for us,” Kyle Andeer, Apple’s chief compliance officer, said in a hearing before Congress last month. “It’s a built-in feature of our devices.”
Cook said the same thing in his opening testimony. “Apple’s business is not structured in that way that allows a person to push a button and get an income statement on the App Store,” he said.
Apple says it does not allocate costs for the App Store, and internal documents dealing with revenue for the marketplace generally do not include expenses. This means that, depending on the company, the margins or profits don’t show the full picture.
In expert testimony on behalf of Apple, Richard Schmalensee, an economics expert at the Massachusetts Institute of Technology, said that “Barnes’ estimate of the App Store operating margin is unreliable because it examines a segment of the iOS ecosystem in isolation in a way that artificially increases the apparent operating margin of that segment. He added that “any accounting measure of the App Store’s stand-alone profitability is also arbitrary and therefore unreliable as an indicator of anything.”
In a request to the judge to ban Epic from referring to App Store financial data in open court, Apple said the information could “unduly confuse the securities markets and the participants in those markets, including many pension funds, mutual funds and other ordinary investors. who own Apple shares. “