Apple's services revenue faces a $4-6 billion hit from the EU's Digital Markets Act, with a Commission decision due in Q2. The stock's premium valuation hinges on the outcome.
The European Union's Digital Markets Act took full effect last week. Apple must open its App Store to third-party payment systems and sideloading by March 7. The change directly threatens the company's high-margin services revenue, which hit $85 billion in fiscal 2024 and accounts for roughly 22% of total sales.
Services margins run near 70%, far above the 36% gross margin on hardware. Apple collects a 15% to 30% commission on in-app purchases and subscriptions. Developers who route payments outside the system could cost Apple $4 billion to $6 billion a year, Morgan Stanley estimated in a January note.
The risk is not new. Apple already lost a similar fight in South Korea and the Netherlands, where regulators forced alternative payment options. In those markets, developer adoption has been slow – Epic Games and Spotify are among the few to use the new systems – but the EU's larger consumer base and stricter enforcement deadlines raise the stakes.
Apple responded by proposing a new fee structure: a 0.50 euro per-install fee on apps distributed outside its store, plus a reduced 17% commission on in-app payments. Critics called the plan a workaround. Spotify's chief legal officer said the proposal "makes a mockery of the DMA." The European Commission has not approved the plan.
A worst-case outcome: the Commission rejects Apple's fee structure and demands a clean sideloading option with no per-install charge. That would gut the commission model, cutting services revenue by an estimated 10% to 15%, according to a Reuters analysis of analyst consensus. Apple's stock, already trading at 28 times forward earnings, would face multiple compression.
A best-case outcome: the Commission accepts Apple's fee proposal, and most developers stay inside the walled garden, avoiding the per-install charge by sticking with the standard App Store. That scenario would limit revenue loss to under $2 billion.
The Commission's decision is expected in the second quarter. Until then, Apple's services revenue growth – which slowed to 11% in the December quarter from 16% a year earlier – will face pressure. Investors watching the stock should track developer adoption rates and Commission statements, not just revenue figures. A ruling against Apple's fee structure would test the services thesis that has supported the stock's premium valuation.
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