Apple shares rise after DoJ ruling in Google antitrust case, analysts hail it as 'near best-case scenario' for the company.

Apple shares rise 3.9% premarket after a US District Judge issues remedies in the Google antitrust case that analysts describe as highly favorable for the iPhone maker. Morgan Stanley says the ruling is "a near best-case scenario" for Apple, allowing it to continue collecting traffic acquisition payments from Google while renegotiating rates annually. The firm raises its price objective to $260, citing increased confidence in Services growth.

Apple shares surged 3.9% premarket on Wednesday following a U.S. District Judge's remedies in the Google antitrust case, which analysts described as highly favorable for the iPhone maker. Morgan Stanley, in a Wednesday note, termed the ruling "a near best-case scenario" for Apple, allowing it to continue collecting traffic acquisition payments from Google while renegotiating rates annually [1].

The ruling, issued by U.S. District Judge Amit Mehta, bars Google from maintaining exclusive contracts for Search, Chrome, Assistant, and Gemini, but permits it to continue making payments to distribution partners. Morgan Stanley explained that this means Google can no longer be Apple's exclusive and default search partner for multiple years, but Apple can still collect traffic acquisition payments from Google (and others) to distribute search [1].

These payments represent a significant revenue stream for Apple, with a value of $25 billion annually and margins of over 95%. Morgan Stanley concluded that the ruling is "a near best-case scenario for Apple and should be a clearing event for the stock." The bank added that the financial impact is likely to be "negligible, and perhaps even positive," as Apple can now renegotiate rates annually and has the option to introduce a search choice screen if it wishes [1].

Bank of America echoed the view, calling the ruling "a win for Apple" and raising its price objective to $260, citing increased confidence in Services growth. The firm noted that the substance of the remedy already exists, where Apple has Google as the default search engine but also allows users to change that default to some other search engine in settings [2].

The ruling comes nearly one year after Judge Mehta ruled that Google illegally held a monopoly in internet search. Google argued that it has plenty of competition and that any change to the company as a whole would have potential national security implications. However, the judge ruled that Google violated Section 2 of the Sherman Act, which outlaws monopolies, by creating strong barriers to entry and a feedback loop that sustained its dominance [2].

While Google is not required to cease payments to Apple for preloading Google products, it must share search data with competitors to ensure an equal playing field [1]. The ruling also states that Google no longer has to sell off portions of its company like Google Chrome or Android [1].

The ruling is significant as it changes how the internet is monetized. Google's search deal with Apple has been lucrative for Apple, with Google paying Apple around $20 billion annually. However, the deal has been a part of Apple's incredible services growth, and its value is now uncertain [1]. Apple may offer users a picker after a software update or even introduce its own search engine, but users are likely to choose Google if given the option [1].

The future of search on the iPhone remains uncertain. Apple is expected to make dramatic changes to its operating system via Apple Intelligence over the course of the next year. It may enable a simplistic search engine powered by the web crawler AppleBot or augment its own search using multiple engines [1].

References:
[1] https://ca.finance.yahoo.com/news/doj-ruling-near-best-case-122013110.html
[2] https://www.ainvest.com/news/apple-shares-rise-judge-rules-google-continue-preloading-deals-antitrust-case-ruling-2509/