Breaking Up Apple

By Matthew Gutierrez and Shawn O'Malley · March 21, 2024

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The IPO market is back, baby! ??

Reddit, known as the “front page of the internet,” cashed in on that reputation; it priced its shares at the top of its target range (between $31 and $34 per share), allowing the company to raise almost $750 million.

Even better: Once trading opened to the masses, Reddit’s stock jumped another 50% — a strong signal that investors once again have an appetite for new stock listings, especially for the first major social media company to go public in five years.

?? By the way: Yesterday, we offered the next 20 sign-ups for We Study Markets Pro (30-day trial), a free copy of Howard Marks’ timeless book, Mastering the Market Cycle. We’re extending that offer again today

Sign up for our Pro market research and claim your copy of Mastering the Market Cycle.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• DOJ sues Apple over iPhone monopoly
• Is the era of 5% returns on cash ending?

This, and more, in just 5 minutes to read.

POP QUIZ

What’s the worst-performing stock in the S&P 500 so far this year? (The answer is at the bottom of this newsletter.)

Chart of the Day

In The News

?? The U.S. Government Sues Apple Over Smartphone Monopoly

Is Apple a monopoly? U.S. regulators think so, at least in the smartphone space.

On Thursday, the Department of Justice launched a landmark case against Apple, accusing the company of suppressing competitors across several domains, from smartwatches to messaging services and gaming apps.

Feature, not a bug: For Apple, the stickiness of its products is an intended feature derived from carefully designed overlapping product ecosystems—your Mac, iPhone, iPad, and Apple Watch are all seamlessly interconnected.

• From blue text messages to a synchronized collection of your photos taken across devices, Apple’s technology often aims to make third-party services unnecessary. Correspondingly, Apple’s business model is often known as a “walled garden.”

The price of convenience: To many users, unrivaled convenience is worth more than more innovative tech products lacking the same immersive ecosystems.

To regulators, it’s a sign of Apple’s extensive “market power,” an economic and legal term for when a company can raise prices far beyond what would be tolerated if there were more competitors.

• Apple’s rebuttal argued, “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets.”
• “If successful, it would hinder our ability to create the kind of technology people expect from Apple — where hardware, software, and services intersect.”

Why it matters:

Market power litmus test: While “market power” abuses against consumers are less tangible than obvious price gouging, it’s hard to argue against Apple’s dominance; how many of us, especially those who have had iPhones for over 15 years, would switch away from Apple if they raised prices?

The lawsuit alleges that Apple’s “astronomical valuation” has come at the expense of consumers, developers, and rival phone makers, saying, “Each step in Apple’s course of conduct built and reinforced the moat around its smartphone monopoly.”

• U.S. Attorney General Merrick Garland defines monopoly power as “the power to control prices or exclude competition.”
• On that point, consumer costs are often subtle, manifesting as a lack of alternatives (blocking cross-platform messaging apps, limiting third-party wallet apps) and even punishment for using alternatives (ever tried to add an Android “green text” user to an iPhone group chat? And don’t bother trying to use your Apple Watch with a new Android).

What’s next: If the DOJ wins...