The DOJ antitrust lawsuit against Google could pose a risk to Apple’s valuation, analyst says

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  • The Department of Justice’s antitrust lawsuit against Google could pose a risk to Apple’s valuation, according to a Wednesday analyst note from Bank of America.
  • As detailed in the lawsuit, Apple has received up to $US12 billion per year in high margin licensing fees from Alphabet for setting Google as the default search option on iPhones.
  • If that agreement is determined to violate antitrust policies, it could represent a significant hit to Apple’s earnings and a risk to its $US2 trillion valuation.
  • “Any changes to the rev share agreement could lead to a potential rev/margin headwind in services that may result in the valuation multiple contracting,” Bank of America said.
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Tuesday’s Department of Justice antitrust lawsuit leveled against Google could have negative implications for Apple and its $US2 trillion valuation, according to an analyst note from Bank of America.

“Aside from Google itself, Apple (not Microsoft) is the most frequently mentioned company in the complaint,” DataTrek Research co-founder Nicholas Colas observed in another note on Wednesday.

In Tuesday’s lawsuit, the DOJ complaint alleged that part of Google’s search monopoly stems from it being the default search engine on iOS devices.

“The current version of the Google – Apple agreement substantially forecloses Google’s search rivals from an important distribution channel for a significant, multi-year term,” the DOJ complaint said.

Google has paid Apple as much as $US12 billion per year to be the default search engine on Apple’s Safari Browser, Siri, and Spotlight.

According to Bank of America, this revenue represents about 15% of Apple’s Services revenue.


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“Given that this revenue translates directly to profit, we est[imate] almost all the rev[enue] flows to Apple’s net income and can account for up to $US0.50 in EPS or approx[imately] 10% of EPS,” Bank of America said.

A potential solution to Google’s antitrust woes could be an end to the Apple-Google revenue agreement, Bank of America hypothesised. In this scenario, Apple users would likely have to instead opt in to Google being the preferred search engine rather than it being set as the default.

This would put other search competitors like Bing and DuckDuckGo on equal footing with Google in terms of grabbing hold of iOS search market share, Bank of America said.

“Any changes to the rev[enue] share agreement could lead to a potential rev[enue]/margin headwind in services that may result in the valuation multiple contracting,” Bank of America concluded.

The bank reiterated its neutral rating on Apple due to a “balanced risk reward,” and maintained its $US140 price target for the iPhone maker, representing potential upside of 21% from Tuesday’s close.


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