May 7th, Apple’s aapl Eddy Cue, Senior Vice President of Services, testified in the Department of Justice suit against the Alphabet googl That Apple was considering Safari Revamp, which includes the end of its long-term Google Search Partnership. He also said the April Safari search question is down.
Why it matters: With a market share of around 20% of the global mobile browser market, Safari’s default placement of Google search was at the heart of the DOJ anti-trust lawsuit against Google. This partnership change is important for both the alphabet and Apple.
•Alphabet’s revenue sharing agreement with Apple costs around $20 billion a year. Part of this payment is due to the default placement of Google Search as Safari’s search engine, but the rest is a reduction in ad revenue generated by Safari search.
•Apple believes it is unlikely to end RSA with Alphabet without plans to pull back $20 billion. In the long run, Google is one of the list of options that users can choose, and you’ll see how equilibrium has RSAs that don’t use Apple for each search provider.
Conclusion: We maintain a fair value estimate of $237 for wide mot alphabets. I think investors’ reaction to Eddy Cue’s comments are exaggerated. We hope that queries will move to artificial intelligence search bots, but we continue to model the profitability of most of Google.
•This dynamic search space does not consider Google to be a passive observer. The company’s investment in AI overview, AI modes, and Circle to Search shows promise. We expect a search query migration, but investors believe there is a price setting for the destruction of the material value of the search business.
•However, due to the mix of AI infusion search engines and fewer ads placed in text-based searches, we expect Google search to grow at a compound annual growth rate (6%), lower than the broader digital advertising market (10%) over the next five years.
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