The EU’s busting out its brand-new big guns for an appropriately big target.

On Monday, the European Commission accused Apple of breaching the relatively new Digital Markets Act (DMA), a raft of legislation aimed at holding large tech companies to an elevated standard of antitrust and consumer protection. It may just result in the deepest regulatory bruise in Apple’s history.

How Do You Like Them Apples

EU edicts have already put a dent in the California company’s business model; by the end of this year, all Apple devices sold in the EU will need to have USB-C compatible charging ports, rather than Apple’s bespoke lightning charger. This was an annoyance for the proprietary-inclined Apple, but far from an existential threat.

App Store scrutiny, however, cuts a little closer to the bone. Charging a commission on in-app purchases, typically between 15% and 30%, has long been a significant profit-driver for Apple — though some developers have complained they are forced to increase prices for users in order to offset the cost. Apple also stipulates that developers cannot tell users to simply go and buy, say, a Spotify subscription on their laptop to get a cheaper deal. The EU has said its “preliminary view” is that such anti-steering tactics are not legal. In fact, the EU Commission in March slapped Apple with a nearly $2 billion fine specifically over anti-steering tactics with music services like Spotify, in no small part because Apple operates direct competitor Apple Music. 

Monday’s DMA accusation broadens the EU’s scope beyond just music streaming, and could mark a new level of threat:

• Under the DMA, the EU can impose fines of up to 10% of a company’s annual global turnover if it finds a breach has indeed been committed, and that can go up to 20% in cases of “repeated infringements.”
• In its last fiscal year, Apple brought in $383 billion in total revenue (with total net income of around $97 billion). Suffice to say, a fine running somewhere between $38.3 billion and $76.6 billion would be unwelcome to say the least.

“The case will be an important test of the extent to which [large tech companies] can creatively depart from the level of openness originally envisaged by the DMA’s drafters, meaning this and similar early cases are likely to set a benchmark for compliance and enforcement in the future,” Dr. Greg Taylor, an associate professor and senior research fellow at the Oxford Internet Institute, told The Daily Upside.

App Storekeepers: Apple also faces an upstart rival in the app store business: OpenAI, with which it just formed a partnership, because, you know, Silicon Valley. Six months ago, OpenAI opened an app store called GPT Store. And while the company doesn’t seem to have landed on a monetization strategy, developers told Business Insider about the various avenues they’re considering, including freemium models, ads, and affiliate links. OpenAI might want to watch how the Apple/EU drama pans out before it starts laying down any new laws in the GPT Wild West…

How are Americans responding to inflation, high interest rates, and other forms of financial pain? A record number of them are investing in the stock market. 

Almost half of all US households’ financial assets are tied to public stocks, a near-record high, according to recent Federal Reserve data.

Playing the Stock Game

In the first quarter, about 42% of US households’ finances were invested in corporate equities — which includes both directly owning stocks and indirect involvement like retirement accounts — just below its peak in the last quarter of 2021. Before the dot-com bubble burst and the housing market crashed, that same figure stood at 38% and 33%, respectively. Plus, according to the Fed’s latest survey of consumer finances, a record 58% of households now own stocks thanks to a wave of new pandemic-era investors who had extra time and cash on their hands during lockdowns.

Simply put — more people have more money in the stock market. And it’s easy to see why:

• In the past five years, all the major indexes have made substantial gains. The Dow is up about 50%, and last month closed above 40,000 for the first time in its history. The S&P 500 has jumped 85% since 2019, propelled by the seemingly invincible Nvidia, while the tech-heavy Nasdaq has skyrocketed nearly 120%.
• As much as the Fed would love for the economy to cool so it can reduce interest rates, consumer spending is still strong even as Americans’ excess savings begin to dry up. Deloitte forecasts the US economy to post real GDP growth of 2.4% this year, slowing to 1.1% in 2025. And who will reap the benefits? Shareholders.

Ain’t Got No Home: Owning a house has generally been viewed as one of the most stable investments a person can make, as it builds equity and the foundation for wealth creation. However, people’s hopes of obtaining that green lawn and white picket fence are waning. According to a recent housing survey from the New York Fed, renters’ self-assessed probability of ever owning a home sits at a little more than 40%, a series low. That could help explain the rise in stock market participation. It’s a heck of a lot easier than buying a house.

Monday saw a ray of light find its way into the shadow of what Bain & Company previously dubbed a “towering backlog” facing private equity buyout funds.

US PE firm KPS Capital Partners sold European food can company Eviosys to Sonoco Products — a South Carolina-based packaging company that makes Pringles’ famed paperboard tube cans — for $3.9 billion after paying $2.7 billion for the company in 2021. A rare buyout windfall in 2024, the deal tells us a lot about the state of PE, the rise of interest rates, and even the pensions sector.

Don’t Pension It

The PE sector kicked off 2024 with a record $3.2 trillion worth of unsold deals on its books, according to Bain. Many of those deals date back to 2021, when low interest rates led to a record $1.1 trillion in buyouts — activity has since plummeted by around half. As interest rates have climbed, corporate valuations have gone south, making it harder for buyout firms to exit these deals and make good on returns to their investors:

• Buyout funds raised between 2019 and 2021 have together returned under 20% of investor commitments, something Goldman Sachs said is “drastically behind” funds raised in previous years. That KPS’s sale of Eviosys netted a solid windfall stands out.
• One group in particular will hope the windfall acquisition is a sign of more to come: large public pension funds, which have on average 14% of their assets in private equity, according to data from JPMorgan Chase and Boston College. Sovereign wealth funds and university endowments are other notable investors in buyout funds.

The Wall Street Journal noted earlier this month that some pensions have been selling PE fund stakes they picked up during the 2021 glory days for a loss on the secondhand market — secondary market buyers paid an average of just 85% of what stakes were valued at three to six months earlier last year, according to Jefferies. Meanwhile, two of California’s largest pensions, CalPERS and CalSTRS, have approved plans to take out loans to access cash.

Zombie Econolypse: Amid the crunch, PE funds are holding on to investments longer than they promised: Almost half of PE investors quizzed by Coller Capital earlier this year said they had money in zombie funds, a.k.a. PE funds that failed to pay out on their expected timetable.