The Department of Justice’s antitrust lawsuit against Alphabet, Inc. GOOGL GOOG regarding its search business may not hurt Apple, Inc. AAPL, according to Deepwater Asset Management’s Gene Munster.
What Happened: The DOJ has taken cudgels against Alphabet for shutting out competition and hindering innovation in the search business by paying huge sums of money to companies, including Apple. Bernstein analyst Toni Sacconaghi, Jr. estimated in Aug. 2021 that Google could be paying about $15 billion to Apple in 2021 for remaining the default search on iOS devices
A Wall Street Journal story published Monday raised the possibility of Apple losing this easy money and also having to invest in developing its own search engine.
Commenting on the report, Munster said the lawsuit could play out to be a “net neutral to positive” for Apple, terming his conclusion as an “out-of-consensus” view.
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Two Likely Paths: As opposed to Goldman Sachs analysts’ view of a negative 15% impact on Apple’s earnings in 2025, as reported by the Journal, Munster said he sees a 10% negative impact. He said it is less likely that the whole of the high-margin revenue stream from Alphabet will go off by 2025.
Apple has maintained this relationship with Alphabet due to the revenue it brings in and the tech giant’s intent to give its customers a great search experience, Munster said. Google is the preferred search provider for people, the fund manager said.
“And so by defaulting to Google, it’s just on brand with Apple. Imagine being with sub 10% market share of the search in Safari would it default to Bing, it’s just kind of feel tone deaf,” he added.
Munster said he sees two likely paths ahead. If the DOJ requires Apple to have a good-faith bidding process, It will probably be Microsoft. “And likely given what’s going on with AI and some of the increased importance with placement and search, I think that they can get more than they’re currently taking in from the Google relationship,” he said.
The one negative and outcome, however, could be Apple likely irritating some Safari users if it defaults to Microsoft Corp.’s MST Bing.
Secondly, nothing could change, which is the most likely outcome, the fund manager said. Regulating pricing in corporate relationships is difficult, he said. “There’s a distant connection between the price of search and the cost of products for consumers the Department of Justice could try to lean into,” he said, adding, “that’s a stretch.”
“And so I think ultimately that nothing ends up happening here, that status quo remains and that this issue essentially just blows over down the road,” Munster said.
In premarket trading on Tuesday, Apple edged up 0.17% to $179.29, and Alphabet’s Class shares rose 0.16% to $139.72, according to Benzinga Pro data.
Photo Courtesy: Koshiro K On Shutterstock
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