The antitrust ruling against Google may not be the lose-lose scenario for the search giant and its key partner Apple that some are predicting. A federal U.S. judge on Monday ruled Google has created an illegal monopoly in the internet search market by erecting barriers to entry for competitors and creating deals that helped to keep it on top. The court found that Google violated Section 2 of the Sherman Act, which outlaws monopolies. At the heart of the case is Google’s exclusive relationship with device makers to be the default search engine on their screens. That includes Apple’s iPhone and iPad products. Google paid Apple $20 billion in 2022 alone for the privilege, according to recent court documents. The court said these partnerships helped to fend off rivals in the search space and extend its dominance. Kent Walker, Google’s president of global affairs, said the company plans to appeal the court’s decision. “This decision recognizes that Google offers the best search engine, but concludes that we shouldn’t be allowed to make it easily available,” Walker wrote in a statement. “As this process continues, we will remain focused on making products that people find helpful and easy to use.” Wall Street was quick to weigh in on the ruling. Barclays analysts, for example, said both Google and Apple are losers from the decision, noting the former is in a “more precarious position than investors think as they start losing these defaults.” Apple, they said, will accrue massive costs if the company ditches Google in order to launch its own service. Barclays analysts said the outcome could be similar to when Google lost a similar deal with Firefox to Yahoo eight years ago, when Google’s share dropped from 90% to 60% to 70% and never got back above that higher end of the range. “Google’s own internal projections suggest that it would only claw back 30% of lost iOS mobile queries,” the analysts wrote. “This is likely to be a real problem if Apple were to be forced into the search business.” Jim Cramer, however, argued that the ruling is “better for [Google parent] Alphabet than people think.” This is because the tech behemoth would not have to dish out a giant check to Apple as it has for years, cutting back on substantial costs for the company. But most experts, including Jim, said if the ruling is upheld — and a potential remedy is that Google has to stop making these kinds of search agreements with Apple — it erases an important revenue stream for Apple. Google’s annual payment to Apple is considered part of the company’s high-margin services business, which has enabled Apple stock to fetch a higher earnings multiple in recent years and lately helped offset weakness in device sales. AAPL YTD mountain Apple (AAPL) year-to-date performance “By collateral damage of course, this is negative for Apple,” Jim said. “They did nothing other than have a really good system.” However, he added: “Would I sell Apple on this? Well, no.” Bank of America analysts tried to assuage Apple investors’ concerns around services revenues. It’s not all gloom and doom for Apple if Google cuts back on that annual payment because the iPhone maker still gets money from traffic generated on its devices. “If the courts ultimately prevent Google from paying to remain the default, Apple might lose this portion of the annual payment; however, we still expect a revenue share agreement for the traffic that Apple generates,” the analysts wrote in a Tuesday note. Jim said investors shouldn’t expect any near-term financial impact on either business. “It’s not like right now Alphabet is going to say to Apple, ‘We’re not going to pay you anymore. Good luck.’ That doesn’t happen,” he said. GOOGL YTD mountain Alphabet (GOOGL) year-to-date performance Some Wall Street analysts echoed the Club’s sentiments. Bank of America said that Apple “may not feel the impact of any change for years” because of the appeal process. The analysts also reiterated their buy rating on Apple shares. Investors seem to be shrugging off the news, at least so far. Alphabet is up 0.44% on Tuesday, while Apple traded flat in the afternoon. Alphabet and Apple shares declined over 4% and 6%, respectively, on Monday. The moves lower, however, were likely due to the broader market sell-off. (Jim Cramer’s Charitable Trust is long AAPL, GOOGL. See here for a full list of the stocks.) 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The logo of Google displayed on an Apple iPhone.
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The antitrust ruling against Google may not be the lose-lose scenario for the search giant and its key partner Apple that some are predicting.
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