Stock prices for Apple climb by 3% following confirmation of a $20B partnership with Google, enhancing optimism about the tech giant's services sector.
In a significant development, a US federal judge has set remedies in the Google antitrust case, allowing the multibillion-dollar arrangement that makes Google the default search engine in Safari on Apple devices to continue. The ruling, handed down by Judge Amit Mehta, has been hailed as a "monster win" for Apple by analysts at Wedbush.
The decision, however, is not without its conditions. The court has barred exclusive deals but has not ordered a breakup or a ban on Google's payments to distribution partners. Moreover, the ruling requires Google to share certain data with rivals to support competition.
The outcome of the case was framed as a clear positive for Apple's high-margin services mix. Apple's June quarter earnings report showed revenue of $94.0 billion, up 10% year over year, and EPS of $1.57, up 12%. With the premium multiple for Apple's services already in place, the ruling allows Apple to model its services with the Google revenue-share intact for now.
Regulatory remedies in the Google antitrust case are evolving, and separate cases, especially those related to Google's advertising technology, may continue. The ruling trims a key tail risk, but investors should still monitor the implementation of these remedies closely.
Policy shifts in the US and Europe target mobile distribution and app stores, areas critical to Apple's broader services strategy. Any adjustments to commercial terms between Google and its partners may emerge during the compliance phases.
The US Department of Justice (DOJ) has the option to appeal the ruling. If an appeal is filed, it could potentially prolong the uncertainty surrounding the arrangement between Google and Apple.
Despite the potential for further regulatory action, the ruling provides a measure of stability for Apple's services business. Future returns for Apple will likely hinge on sustained services growth, disciplined execution, and the evolution of regulatory remedies. With Apple's services margins running well above hardware margins, the company remains well-positioned to capitalise on this opportunity.
As a result of the ruling, Apple's stock rose on the news, reflecting the market's positive reaction to the outcome of the Google antitrust case. The court's data-sharing requirements could aid competitors over time, but for now, Apple can continue to reap the benefits of its partnership with Google.
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