News broke on Monday that suggested Alphabet Inc.’s (NASDAQ:GOOGL) Google is set to remain the go-to search engine for Apple (NASDAQ:AAPL) devices, at a whopping $3 billion price tag.
CNBC first reported that Bernstein analyst A.M. Sacconaghi Jr. said in a note to clients on Monday that Alphabet will pay Apple $3 billion this year in order for Google to continue to serve as the default search engine for iPhones and iPads.
Google paid Apple $1 billion for the same search engine rights in 2014. However, no official reports of a new Apple and Google deal have surfaced.
"Court documents indicate that Google paid Apple $1B in 2014, and we estimate that total Google payments to Apple in FY 17 may approach $3B," Sacconaghi Jr. noted. "Given that Google payments are nearly all profit for Apple, Google alone may account for 5% of Apple's total operating profits this year, and may account for 25% of total company OP growth over the last two years."
The analyst noted that Alphabet could decide not to pay Apple any licensing fees to make Google the default search engine because Alphabet might be confident that its platform is already the go-to search engine. But Sacconaghi also said that Apple's iOS devices accounted for roughly 50% of Google's mobile search revenue, which could make banking on Google’s ubiquity alone a potentially dangerous proposition.
Shares of Apple closed up 1.50% on Monday, while Alphabet stock finished up 0.91%.
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