Investors ‘discounting’ Google’s possible loss of Apple’s search deal

Investing.com — Investors in Google parent Alphabet (NASDAQ: ) are now “reducing” the potential loss of the search giant’s exclusive deal with Apple (NASDAQ: ) following a landmark decision by a US judge last month, according to analysts from Oppenheimer.

In a note to clients, analysts noted that Google (NASDAQ: ) generates 31% of its gross search revenue through Apple devices.

It also pays about $20 billion annually to Apple in exchange for the iPhone maker making Google the default search engine on those devices.

But retailers are now considering scrapping that arrangement after a US federal judge ruled in August that Google has an illegal monopoly, analysts said.

The decision raised questions about whether Alphabet — which has about 90 percent of the online search market and 95 percent on smartphones — should wind down its sprawling operations, potentially upending the global tech landscape.

News reports have suggested that one way for Google to avoid antitrust action following the decision would be to terminate its agreement with Apple.

However, even if it is cancelled, Oppenheimer analysts estimated that Google could lose 36% of its business with Apple and its net income would remain unchanged. Crucially, that estimate assumes that traffic acquisition costs — or TACs, payments made to third parties to drive Internet users to certain sites — would be 0 percent, analysts said.

“Similarly, at a 15% TAC, which is higher than (what) Android (OEMs) get, Google could lose 25% of Apple’s searches with no change in net income,” they added .

Citing a survey they conducted, Oppenheimer analysts also noted that search remains the best for “satisfying customer use cases.”

“75% of iPhone users would choose Google if they had to select their default search engine. Similarly, if (Apple) defaulted iPhones to an alternative search engine, 78 percent would download Chrome to use Google search,” the analysts wrote. Chrome is Google’s web browser.

However, analysts signaled that the ramifications of the US judge’s ruling were still “unknown”, while media reports said the stage for Google to find a remedy to the decision, which Google has vowed to appeal, could be long