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More specifically, Judge Mehta said Google’s $26 billion in annual payments, the lion’s share of which find their way to Apple to ensure that its search engine remains the default option on smartphones, have “enabled Google to increase text ads prices without any meaningful competitive constraint.”
“After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly,” Mehta wrote. “It has violated Section 2 of the Sherman Act.”
No clarity yet on Google ruling
The DoJ offered no immediate remedies from the ruling, and Google has said it will appeal, meaning the ultimate outcome may not be known for several months or perhaps longer.
Morgan Stanley analyst Erik Woodring, who carries an overweight rating and $273 price target on Apple, sees no immediate impact on the group’s bottom line but says there will be implications going forward.
“Monday’s ruling against Google is likely to impact the $20 billion-plus Apple collects annually from Google, though there was no clarity on potential future remedies or time line,” Woodring said.
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Google essentially pays Apple a percentage of the ad revenue generated from Safari and Chrome on Apple devices, a figure that amounted to around $20 billion in 2022. Apple’s revenue for its 2023 financial year totaled $394.3 billion.
Wedbush analyst Scott Devitt, meanwhile, who also carries an overweight rating with a price target of $205 on Apple, doesn’t think it will look to replace its current agreement with Google, although it is expected to change.
“Apple has had many opportunities to replace Google and hasn’t, partly due to monetization capabilities but also due to Google’s superiority in search,” he said.
Big money in search
The court ruling in fact showed that an analysis from Alphabet itself in late 2020 concluded that Apple would need to spend around $20 billion to produce a global search engine that competed with Google, with a further $7 billion in annual engineering and product management costs.
Devitt from Wedbush argued that the best outcome for Google, however, would cost Apple a notable chuck of revenue.
“Maintaining a default distribution on leading devices and avoiding sharing revenue would be a clear positive for (Google) stock as core search margins would increase materially,’ Devitt said.
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Bank of America analyst Wamsi Mohan, who rates Apple buy with a $260 price target, also agrees that the impact of the ruling could take years to calculate.
“If the courts ultimately prevent Google from paying to remain the default, Apple might lose this portion of the annual payment,” he said. “However, we still expect a [revenue-sharing] agreement for the traffic that Apple generates.”
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Apple shares were marked 1.35% lower in early Tuesday trading to change hands at $206.40, a move that would extend their one-month decline to around 9.4% and value the group at just over $3.13 trillion.
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