EU Spares Apple Ads and Maps from DMA, but App Store Regulatory Overhang Persists

What happened

The European Commission announced that Apple Ads and Apple Maps should not be designated under the EU's Digital Markets Act, citing Apple Maps' low usage in the EU and the limited scale of Apple Ads in the EU online advertising market. This decision provides a temporary regulatory reprieve for these specific services, which are smaller segments within Apple's broader portfolio. However, the DeepValue master report highlights that Apple's primary regulatory risk stems from EU and UK actions targeting App Store economics, which could force fee cuts and undermine high-margin Services growth. Apple's valuation at ~34x EPS assumes sustained Services expansion, making it vulnerable to any regulatory-induced slowdown in this critical segment. While this news removes some near-term uncertainty for Ads and Maps, it does not address the core App Store threats that continue to pose significant downside risks to the investment thesis.

Implication

The exclusion of Apple Ads and Apple Maps from DMA designation offers a modest positive by reducing immediate regulatory burdens on these services, which could support their growth without added compliance costs. However, the DeepValue report emphasizes that the App Store is the focal point of regulatory scrutiny, with potential fee cuts threatening Services margins and growth, a key driver of Apple's high valuation. Investors should remain vigilant as ongoing EU and UK investigations could lead to structural changes that compress earnings, aligning with the report's bear case scenario of $220 per share. Apple's current ~34x EPS multiple embeds expectations for robust Services performance, making any regulatory setbacks on the App Store particularly damaging. Consequently, this news does not materially improve the risk-reward profile, reinforcing the 'WAIT' rating and the need for a more attractive entry point or clearer evidence of margin resilience.

Thesis delta

The EU's decision on Apple Ads and Maps provides a minor regulatory relief but does not mitigate the substantial App Store risks outlined in the DeepValue report. Therefore, the investment thesis remains unchanged, with continued emphasis on monitoring EU/UK regulatory outcomes and Services growth trends for any shifts in downside scenarios.