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In 2021, Apple Inc (ticker: AAPL) largely prevailed against Epic Games – better known as the developer behind for the virally poplar game “Fortnite” – in a legal battle brought upon the former by the latter. However, where Apple was required to modify its business was in relation to payment options for “in-game transactions”. Almost five years later, it was found by the very same court (and judge) to have been in contempt of the ruling issued by the court in this matter, thus invoking tis ire and a demand to immediately comply.
What could be so important in the area of business encapsulated by the phrase “in-game transactions” that would cause the tech giant to essentially defeat from the jaws of victory? As it turns out, “in-game transactions” are a massive opportunity.
The Economics of GamingSelf-contained video games purchasable on a disc and wholly run within a computer are largely a thing of the past. In its place today are massive and complex games that require an internet connection while the majority of the code stack and algorithms – i.e. the game’s “engine” – now reside in datacenters. Video games have gotten progressively more and more expensive, despite which consumption has estimated to have solid growth. Statista and Juniper Research estimate1 that video game developers worldwide will likely earn over 11 billion dollars in 2025.
Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at
Source: Statista; chart redesign by Leverage Shares
Traditionally, game players were required to “grind”, i.e. work the playable character through a series of tasks, missions, et al, in order to find and acquire enhanced gameplay aspects such as powerful weapons in a “shooter” game, higher grades of sports cars in a “racing” game, advanced spells and potions in a “fantasy” game and so forth in order to have an enhanced gameplay experience and/or complete the game satisfactorily. As video games grew in complexity, game developers began to offer a shortcut (of sorts): gamers can essentially “pay to play” at a more advanced level by acquiring these items for a price during the course of the game in order to boost their experience. As time progressed, the range of options available increased to include the appearance of the playable character, the paint job on the car being driven, and so forth. With the widespread acceptance of multiplayer modes – wherein players from all over the world essentially meet in the world created within the game – this progressively grew more important: so much so that it is estimated that “in-game spending” has consistently been 8-10 times greater than the outright sale of games themselves for the past five years now!
Source: Statista; chart redesign by Leverage Shares
How Apple Ended Up in ContemptApple charges all app developers anywhere between a 15 to 30% commission on all transactions enacted through its App Store. Naturally, this encompassed “in-game transactions” as well. App intelligence provider Appfigures estimates2 that the source of Apple’s commissions has witnessed rapid evolution in the mix between mobile games and other apps.
Source: Appfigures; Leverage Shares analysis
Appfigures estimates that users spent over $33 billion on Apple Store apps in 2024 (denoted as “gross revenue”), of which the apps’ developers retained over $23 billion (denoted as “net revenue”) – thus generating a whopping $10 billion for Apple in commissions. However, commissions from games have fallen from accounting for around half of App Store revenue in 2020 to a little over a third in 2024. However, this doesn’t necessarily mean a fall in revenue: games revenue in 2024 grew over 59% relative to 2020 while apps grew 166% over the same period.
Now, in Fiscal Year (FY) 2024, Apple earned over $96 billion in “Services” – which includes the App Store – which in itself was a little under 25% of net sales for the period. Thus, App Store commissions are a little over 10% of Services revenue. However, it could be argued that commissions do not incur substantial cost of sales: the user pays app developers via the already-deployed Apple Pay network, from which the commissions are harvested. Thus, rather than “pre-costs” sales revenue, commissions are more aligned with “post-costs” net income. If considered relative to net income, App Store commissions constitute over 10% of total net income – with commissions from games thus constituting 4%.
The judgment made in 2021 essentially forced Apple to offer users any and all options by game developers – in addition to the Apple Pay method – to pay for “in-game transactions”, thus giving game developers the means to potentially lower the cost of financial transactions by seeking other service providers. Greater revenue pass-through has become increasingly important to game developers since the “pandemic year” of 2021:
Source: Statista; chart redesign by Leverage Shares
After a massive boost in “in-game purchases” in 2021, it is estimated that annual growth has stabilized to a little over 4% from 2023 through 2025. Thus, while the burden of commissions might have been shrugged away by developers in periods of high growth, the stabilization in growth implies that cost rationalization is key to staying afloat and investing into the development of new games.
In the wake of payment options outside of Apple Pay being made available, Forbes’ research estimated3 that game developers implementing direct-to-consumer strategies outside the App Store saw revenue lifts of 14% to 16% on average. However, this came with a catch, which formed the basis of the contempt ruling by the court that was otherwise sympathetic on all other matters in the case brought before it by Epic Games: Apple imposed a new 27% fee on app developers4 when Apple customers complete an app purchase outside the App Store. Furthermore, it also began displaying messages warning customers of the potential danger of external links when making payments outside of Apple’s own payment systems. The display of warnings attempting to deter users from exercising choices that were made available to them by the seller (i.e. the app developer) is considered to a violation of what is referred to as “anti-steering” norms established by California’s competition laws. In 2024, Apple attempted to approach the U.S. Supreme Court seeking to strike this demand out but it failed to secure a favourable ruling. Despite this, Epic Games complained to the courts that Apple continued to display the warning messages.
On April 30th this year, U.S. District Judge Yvonne Gonzalez Rogers – who had presided over the 2021 case – referred Apple itself and its vice president of finance Alex Roman to federal authorities for a criminal contempt investigation over their conduct. Apple is reaching out to the U.S. Supreme Court once again to appeal this rapid deterioration while Epic Games CEO Tim Sweeney called the judge’s order a significant win for developers and consumers.
The Impact on Apple’s Bottom LineThe U.S. isn’t the only region wherein Apple’s revenue-earning ecosystem has been successfully challenged and diminished: courts in the European Union and South Korea had also dismantled this over the past couple of years. What adds additional concern for Apple is the contempt motion in the U.S. courts potentially creating grounds for additional lawsuits from game developers and even users who might state being wronged by its violations of U.S. court rulings. An additional progressively impact would likely be felt on its bottom line: an effective slowing down on App Store commissions from transactions outside of app subscription purchases would resonate down to the bottom line: a 1-2% reduction for FY 2025 can be expected to around a drop of 2-4% in FY 2026 and FY 2027.
While Apple’s stock might be riding high at the moment from being a member of the high-conviction “Magnificent Seven” basket of leading U.S. stocks, investors will likely begin to factor in app-driven purchasing downturns progressively over the next couple of quarters. Professional investors in Europe might like to consider the +3x Long Apple ETP (AAP3) for magnified exposure during upticks of the stock’s trajectory while the -3x Short Apple ETP (AAPS) can be employed during downturns for magnified gains.
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This information originates from Investium Limited, which has been appointed as distributor of Leverage Shares products in Europe by Leverage Shares Management Company Limited (the “Arranger”). Investium Limited with registered address at 6 Nikou Georgiou Street, Office 302, 1095 Nicosia Cyprus, is a financial services provider regulated by the Cyprus Securities and Exchange Commission (CySEC).
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