Dividends and Apple App store profits look “disproportionate,’ Judge tells CEO

In the world of business, analysts tell the public those areas that are making high margins and as an investor you like that news. As a consumer, maybe not so much, but as a investor you are looking for those high margin areas where you can invest your money and make more money. In the case of Apple, recently analysts have been promoting the App store or services as a healthy profit center for the company, which means you do not have to pay as much attention to iPhone sales. What investors tend not to ask is how does Apple maintain the margins, as the concern is more can they?

Court cases tend to provide answers as people have to tell the truth or go to jail. A number of months ago Epic Games sued Apple and similar to most court cases time goes on. Apple’s CEO Tim Cook testified in late May over whether the iPhone maker’s App Store profits from developers such as Epic Games are justified and whether Apple faces any real competitive pressure to change its ways.

In an article from Reuters, Mr. Cook testified for 2 hours, the Judge Yvonne Gonzalez, pressed Mr. Cook to concede that game developers generate most of the App Store revenue and help subsidize other apps on the store that pay no commission.

The issue is important to Apple because the App Store anchors $53.8 billion services business. Epic Games alleges Apple had 78% profit margins.

Linking to dividend paying stocks, all companies have proprietary information that you can see the results but not how they actually earn the income, court cases shed light on the information. As an investor is a company is making margins the way that Apple is alleged to, you are delighted because the business will be a growth center for a while to come before margins begin to come down and then you will look for other areas for the company to grow from. Margins are always a double edge sword, too high and people will want to be in the business, too low and no profits will be made.

There are more questions than answers, till the next time – to raising questions.

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