The last thing Apple Inc. (NASDAQ:AAPL) needs right now is a trip to the courtroom. The company’s stock has been so volatile that it seems a strong gust of wind is all it takes to shoot share prices up or down.
Now, with CEO Tim Cook likely to testify to an e-book price-fixing case and reports that the assigned judge already believes the company is guilty, legal woes could be the next reason to send Apple stock plummeting. Here’s what’s going on, and why Apple investors probably shouldn’t worry.
Comparing Apples and Amazons
This price-fixing case has dogged Apple Inc. (NASDAQ:AAPL) since April 2012. The U.S. Department of Justice filed a claim that the company was in cahoots with several publishers to raise the prices on their e-books, in order to try and compete with e-tail juggernaut Amazon.com, Inc. (NASDAQ:AMZN).
Even though the scheduled court date isn’t until June 3, there’s already some damning evidence against Apple Inc. (NASDAQ:AAPL), including an email from Steve Jobs telling News Corp (NASDAQ:NWS)‘s James Murdoch to “[t]hrow in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99.”
Adding fuel to the fire is the fact that all of Apple Inc. (NASDAQ:AAPL)’s supposed cohorts (including Hachette, HarperCollins, Macmillan, and Simon & Schuster) in the price-fixing scandal have settled their cases and agreed to repay their customers. Penguin Books settled most recently, agreeing to disburse $75 million among its consumer base. The DOJ has now fixed its focus on Apple, believing the company to be the “ringmaster” in the whole operation, although the company still persistently denies this claim.
How Apple might pay
I wrote earlier that a guilty verdict could make Apple Inc. (NASDAQ:AAPL) take an out-of-pocket hurting. However, as more and more publishers have settled, the total reimbursement to customers has amounted to $164 million. Apple’s most recent free cash flow was estimated at $44 billion. If the company was forced to pay a similar amount as all the involved publishers, it could easily do so and still maintain an epic stack of cash.
Right now Apple Inc. (NASDAQ:AAPL) has bigger problems than whether or not it can afford a settlement payout. Its quarterly revenue is down 20% from Q4 of last year. The market has been waiting for Apple to come out with the next big tech innovation, whether it’s an iTV or a smart watch. Like a kid on the day after Christmas, Wall Street is starting to get bored with the toys it already has.