How Will Apple Be Affected by Google/DOJ Battle? Barclays Chimes In

Apple (NASDAQ:AAPL) could feel the ripple effects of the ongoing Google/DoJ trial, though the full extent of the impact remains uncertain.

Last week, the judge presiding over the Department of Justice’s case against Google outlined preliminary remedies aimed at addressing anti-competitive practices tied to Google’s dominance in search. Among the DOJ’s proposals are significant structural changes, including a potential divestiture of Google’s Chrome web browser and restrictions designed to prevent its Android smartphone software from favoring Google’s search engine.

Google is set to submit its response in December and a trial is expected in April 2025. However, the case is likely to go through multiple layers of appeals, which could take several years to resolve fully.

So, how does this involve Apple? Barclays analyst Tim Long, who ranks in the top 3% of Wall Street stock experts, highlights that while Apple is not directly implicated, the handling of Google’s traffic acquisition cost (TAC) could have significant implications.

TAC refers to the payments Google makes to partners that support its search and advertising ecosystem. For instance, Long reckons that Google pays Apple around 36% of the revenue generated through the Safari toolbar, which constitutes the majority of its TAC payments. Essentially, Google is paying Apple to be the default search engine in the Safari toolbar.

Long believes that the advertising segment within Apple’s Services business is primarily made up of the TAC and Apple’s internal advertising activities. For FY24, the analyst estimates that the TAC accounted for 70% of advertising revenues, although the mix is gradually shifting towards a larger share of Apple’s internal advertising.

“This business should be highly profitable for AAPL,” says Long, “as there is not much opex or infrastructure needed to make Google the default search engine.”

So, what will the impact be? Hard to tell at this point, although a 10-20% reduction in TAC revenues over time seems plausible. That said, any revenue loss that Apple experiences could be offset by its own advertising network or new partnerships. Although if Apple decides to enhance its ad capabilities or even develop its own search engine, it will likely lead to a significant increase in operating expenses.

“The challenge will be for AAPL to be able to compete effectively with an incumbent like Google, which makes the ultimate revenue and profitability for AAPL more uncertain,” the 5-star analyst went on to add. “We see any change to TAC as a risk to AAPL that is likely not reflected in the current valuation.”

Long remains an AAPL bear, keeping an Underweight (i.e., Sell) rating on the shares along with a $184 price target. That figure implies a ~22% downside from current levels. (To watch Long’s track record, click here)

One other analyst joins Long in the bear camp, yet with an additional 24 Buys and 8 Holds, the stock claims a Moderate Buy consensus rating. The average price target stands at $245.06, making room for 12-month returns of a modest 4%. (See AAPL stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.