Apple Shares Climb Following Google Antitrust Victory

Apple shares surged over 3% in after-hours trading Tuesday following a federal judge’s ruling that Alphabet can continue its lucrative practice of preloading Google Search onto iPhones. The decision, while stemming from a broader antitrust trial against Google, carries significant implications for Apple’s bottom line.

While Apple wasn’t a direct party in the search monopoly trial, the judge was considering remedies that could have prohibited Google from funneling billions annually to Apple to remain the default search engine on Safari across iPhones, Macs, and iPads.

“Google will not be barred from making payments or offering other consideration to distribution partners for preloading or placement of Google Search, Chrome, or its GenAI products,” Judge Amit Mehta stated in his decision.

“Cutting off payments from Google almost certainly will impose substantial — in some cases, crippling — downstream harms to distribution partners, related markets, and consumers, which counsels against a broad payment ban,” the decision continued, underscoring the delicate balance between competition and potential market disruption.

The core of the landmark case revolved around Google’s dominance in the general search market, alleged violations of the Sherman Act, and the barriers to entry it erected against competitors.

However, the judge stipulated that Google will be prohibited from entering into or maintaining “any exclusive contract” pertaining to preloading its search engine or key apps on devices. Notably, Google cannot bundle its Android services with Google Search or tie revenue share agreements to the acceptance of other Google apps or services.

The decision acknowledged that Apple’s agreement with Google, establishing it as the default search engine out-of-the-box, was indeed “exclusive.”

While Mehta placed restrictions on Google ensuring exclusive distribution for its products through payments, he stopped short of a complete ban, leaving the door open for potential renegotiation between the tech giants. The remedies would, however, limit any revenue-sharing agreement to a one-year term, according to the Department of Justice.

Apple did not immediately respond for a request for comment.

“Now the Court has imposed limits on how we distribute Google services, and will require us to share Search data with rivals,” Google said in a blog post, reflecting the nuanced impact of the ruling. “We have concerns about how these requirements will impact our users and their privacy, and we’re reviewing the decision closely.” The company’s statement hints at potential challenges ahead as it navigates the revised competitive landscape.

The U.S. Department of Justice initiated its antitrust suit against Google in 2020, alleging that the company maintained its dominant market share through exclusionary practices, including its default search deals. The U.S. District Court in Washington ruled last August that Google violated Section 2 of the Sherman Act. Apple’s senior vice president of software and services, Eddy Cue, testified on Google’s behalf regarding potential remedies.

Tuesday’s filing presented the first detailed look at the judge’s proposed remedies.

Analysts have cautioned that it could be years before Apple is compelled to implement changes resulting from the Google suit ruling. Google has indicated its intention to appeal the ruling, with analysts projecting a remedies trial potentially spanning up to two years. Further appeals, even reaching the Supreme Court, remain possibilities, extending the uncertainty surrounding the long-term impact.

While Google maintains “default agreement” deals with various companies, including Samsung and Mozilla, its partnership with Apple stands as the most significant. These agreements are massively important, as Google funnels traffic from Apple’s 1 billion iPhone users to its search engine.

Google poured a staggering $26 billion into these partnerships in 2021 alone to secure its position as the default search engine, according to documents divulged during the trial. This investment yields significant returns for Google, driving traffic from Apple’s extensive iPhone user base directly to its search engine.

Furthermore, the revenue generated is paramount for the sustained growth of Apple’s services business – a segment highly valued by investors due to its superior profit margins compared to hardware sales. Sources inside Apple suggest the services business is multiple times more proftiable than Hardware and shows little sign of slowing down anytime soon.

Beyond the licensing fees, Apple asserts that it leverages Google’s search engine due to its superior quality, prioritizing the delivery of optimal tools to its customer base.

However, Apple has alternative strategies should its relationship with Google falter. Earlier this year, Eddy Cue testified that the iPhone maker is exploring integrating AI search engines as optional software features.

“Cue’s testimony establishes that Google’s high revenue share payments deterred Apple from trying to capture for itself all the advertising rents that flow through the Safari browser’s default search box,” the judge wrote, highlighting the financial incentives influencing Apple’s strategic decisions.

Apple’s revenue derived from Google arrangements is categorized within its financial reports as advertising revenue, contributing to the company’s Services business alongside offerings such as AppleCare warranties, cloud services like iCloud, and digital content like apps and Apple Music.