Investors "discounting" Google's possible loss of Apple search deal - Oppenheimer

Investing.com -- Investors in Google-parent Alphabet (NASDAQ:GOOG ) are now "discounting" the potential loss of the search giant's exclusive business with Apple (NASDAQ:AAPL ) following a landmark decision by a US judge last month, according to analysts at Oppenheimer.

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

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

But traders are now factoring in the scuppering of this arrangement after a US federal judge declared in August that Google was running an illegal monopoly, the analysts said.

The decision sparked questions around whether Alphabet -- which owns around 90% of the online search market and 95% on smartphones -- would need to break up its sweeping operations, possibly altering the global tech landscape.

News reports suggested that one way for Google to avoid antitrust actions in the wake of the ruling would be to end its agreement with Apple.

However, even if undone, the Oppenheimer analysts projected that Google could lose 36% of its business with Apple and its net revenue would remain unchanged. Crucially, this estimate assumes that traffic acquisition costs -- or TACs, the payments made to third-parties to direct internet users to specific websites -- would be at 0%, the analysts said.

"Similarly, at a 15% TAC, which is greater than [what] Android [original equipment manufacturers] receive, Google could lose 25% of Apple searches with no change to net revenue," they added.

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

"75% of iPhone users would choose Google if required to select default search engine. Similarly, if [Apple] defaulted iPhones to an alternative search engine, 78% would download Chrome to use Google search instead," the analysts wrote. Chrome is Google's web browser.

Yet the analysts flagged that the ramifications from the US judge's ruling are still "unknown," while media reports have said the phase for Google to find a remedy to the decision, which Google has vowed to appeal, could be lengthy.

Source: Investing.com