Jefferies: Google's $25 Billion Search Deal with Apple May Be Banned by DOJ

According to analysts at Wall Street investment bank Jefferies, the US Department of Justice is highly likely to ban the long-term search deal between Google and Apple. This decision could cause Apple's stock price to fall by 11%.

Currently, Google is at the center of the biggest antitrust scrutiny in decades, mainly because the US Department of Justice questions Google's practice of placing its search engine at the forefront of smartphones and web browsers (default search engine).

So far, Google has been paying tens of billions of dollars annually to Apple and other companies to give Google Search a prominent position on their devices. However, Jefferies analysts predicted on Wednesday that in order to break Google's search monopoly, the US Department of Justice will prohibit these transactions in the future.

Jefferies estimates that Google has to pay about $25 billion annually to Apple to ensure that Google Search becomes the default search engine for products like the iPhone. This fee accounts for 20% of Apple's pre-tax profit, about 6.3% of Apple's total revenue, and its impact on the stock price is between 8% and 11%.

These transactions took place in 2002 when Google first paid Apple a portion of its search advertising revenue to make Google the default search platform. It is reported that this allowed Google to access Apple's user base, with more than half of the search queries in the United States currently conducted through Apple devices.

During the trial, US Department of Justice lawyers claimed that Google's practice of paying hundreds of billions of dollars to ensure its status on platforms like Apple stifles competitors and hinders innovation. Google countered that its dominant position stems from consumer preferences and that users can easily switch to other search engines if they wish. Department of Justice prosecutors argued that the scale of these payments demonstrates Google's efforts to maintain its monopoly.

Even if the Department of Justice does terminate these transactions, their impact may take time to manifest. Jefferies estimates that it may take the court 3 to 8 years to reach a final outcome, after which there may be a long appeals process. Of course, Jefferies also pointed out that this expectation may be somewhat pessimistic.

However, if the case is really delayed for years as Jefferies expects, Apple has enough time to correct and compensate for any potential revenue losses. Jefferies also added that this impact may be limited to the United States. As for the European market, it will depend on the reaction of European authorities to the decision of the US Department of Justice.

In response, representatives from Apple and Google have not yet commented.

Meanwhile, Apple's stock price remains relatively resilient, thanks to investors' optimism about upcoming products such as the iPhone 17 and new AI technologies.

Nevertheless, if the Department of Justice blocks the deal between Google and Apple, it will mark a significant shift for both companies and may force Apple to explore its own search engine or deeper AI integration, which itself carries risks.

For Google, the risks are equally significant. This case could fundamentally undermine Google's ability to dominate the search engine market through financial agreements.

In any case, the outcome of this case will also trigger a chain reaction in the broader technology sector, potentially opening the door for competitors like Microsoft. As global regulators closely follow this case, it is clear that both Google and Apple stand at a legal decision that could reshape their future.