How The Google Antitrust Case Threatens Apple
The U.S. Justice Department’s antitrust lawsuit against Internet behemoth Google could have major repercussions for Apple. Google is estimated to pay Apple between $8 billion to $12 billion a year to be the default search engine on Apple’s iDevices. While the deal is nice for Google – which sees about 50% of its searches originate from Apple devices, it is much more lucrative for Apple considering that the payments are likely pure profit. The Services segment, under which Apple books these Revenues, is becoming crucial as hardware growth cools. For perspective, over the first three quarters of this fiscal year, Apple’s profits from Services grew 5x as fast as hardware profits.
While the case against Google could take years to conclude, how would Apple be impacted if the deal was forced to end? If we assume that licensing payments from Google stood at about $10 billion in FY’19 and Apple had to forgo the entire amount, Services Revenues would be lower by about 22% with Total Revenues lower by about 4%. The impact on Apple’s Profits would be much more pronounced as Apple likely incurs no costs to earn these Revenues. Specifically, Apple’s Operating Profits would be lower by a whopping 16%, with Operating Margins coming in 380 basis points lower at 20.7%. The impact of the cancellation of the deal on Apple stock could be more pronounced, considering that Services are Apple’s fastest-growing business and Google’s payments likely the most lucrative part of the Services segment.
Our dashboard Breaking Down Apple’s Services Revenue estimates the revenue figures for AppStore, Apple Music, Apple TV+, iCloud, Third-party Subscriptions, Licensing, Apple Care, and Apple Pay.