Analysts at Jeffries have indicated that there is a strong possibility that the U.S. Department of Justice (DOJ) will prohibit Google’s longstanding search agreement with iPhones. This decision, according to Jeffries, might result in an 11% decrease in Apple’s stock value.
Google is currently involved in a significant antitrust trial, as the DOJ scrutinizes the company’s efforts to ensure its search engine remains prominent on smartphones and web browsers. Historically, Google has paid billions to Apple and other companies for prime placement on devices. Jeffries anticipates that the DOJ will prohibit these agreements to dismantle any potential search monopoly. The firm estimates that this $25 billion deal contributes to 20% of Apple’s pretax profit, or about 6.3% of its total revenue, potentially causing an 8-11% decline in Apple’s share prices.
These arrangements date back to 2002, when Google first compensated Apple by sharing search advertising revenue, making Google the default search platform. According to The Financial Times, this facilitated Google’s access to Apple’s user base, with over half of all U.S. search queries currently conducted on Apple devices.
During the trial, DOJ attorneys argued that Google’s significant payments to maintain its platform position impede competition and stifle innovation. In contrast, Google asserts that its market dominance results from consumer preference and that users can easily switch to other search engines if desired. Nevertheless, DOJ prosecutors believe that the magnitude of these payments indicates the extent of Google’s efforts to uphold its monopoly.
Should the DOJ terminate these agreements, Jeffries suggests that the financial impacts might take three to eight years to manifest, as the legal process, including potential appeals, unfolds. The firm considers its projections “pessimistic,” assuming no revenue recovery by Apple. If the case drags on, Apple would have ample time to adjust strategies to recover potential revenue losses. Jeffries also noted that the impact might be confined to the U.S., contingent on Europe’s response to any DOJ decision.
Requests for comment from Jeffries, Apple, and Google went unanswered by Fortune.
Meanwhile, Apple’s stock has remained relatively stable, supported by investor confidence in forthcoming products like the iPhone 17 and the introduction of new AI-powered technologies.
Nonetheless, a DOJ ruling against the Google-Apple deal would signal a major transition for both companies, potentially compelling Apple to develop its own search engine or pursue more advanced AI integrations, avenues that entail their own risks. The stakes are equally high for Google, as this case could significantly challenge its ability to utilize financial agreements to maintain its search-engine market dominance.
The outcome could have broader implications across the tech industry, possibly creating opportunities for competitors like Microsoft. As global regulators closely monitor this case, Google and Apple are poised at a legal turning point that could profoundly alter their futures.