Google's Antitrust Ruling: Potential $20B Impact on Apple and $32B Loss for Google

Google (GOOG, GOOGL) faced a significant blow to its search and advertising operations following a ruling in favor of the Department of Justice in its antitrust lawsuit against the tech company. This development could also lead to substantial financial implications for Apple (AAPL). 

Impact on Google's Search and Advertising Business

The District of Columbia's Judge Amit Mehta's choice could necessitate major changes to Google's core business. One major consequence may involve the termination of a long-standing revenue-sharing arrangement with Apple, which mandates that Apple utilizes Google as the default search engine across its various devices.

The Information Services Agreement and Its Financial Implications

The Information Services Agreement (ISA), established in 2002 and subsequently modified with advancements in technology, has been highly beneficial for both companies. Under this agreement, Google compensates Apple with 36% of the search revenue generated from Apple devices utilizing Google's services. 

Although Apple does not disclose the exact financial benefits it derives from this arrangement, court documents estimate that in 2022, Apple received around $20 billion from Google, which is a twofold increase compared to the payments made in 2020. 

Revenue Impact on Apple

The revenue from the ISA is likely recorded under Apple's Services business segment, which encompasses third-party advertising licensing agreements. In 2022, Apple's Services revenue amounted to $78.1 billion, suggesting that the Google agreement accounted for approximately 25% of its total Services revenue for that year. 

Furthermore, considering that Apple generated $394.3 billion in overall revenue in 2022, the ISA with Google represented roughly 5% of the company's annual revenue for that year. The potential termination of this agreement would significantly impact Apple's financial performance, particularly in light of the rapid growth and increasing importance of its Services segment. 

Implications for Google

If the ISA were to be canceled, it would not only adversely affect Apple financially, but it would also pose challenges for Google. According to court documents, internal modeling conducted by Google in 2020 projected a loss of 60% to 80% of search volume on Apple's iOS devices if its search engine was replaced as the default option, resulting in a potential decrease in revenue of $28 billion to $32 billion for Google.

This represents a significant portion of Google's overall revenue, comprising 15% to 17% of the company's total income. Such a substantial decline would have far-reaching consequences for Google's bottom line and could significantly impact its financial performance.

Appeal and Future Prospects

Despite the potential financial repercussions, Google is expected to appeal the Department of Justice's ruling. However, if Judge Mehta's decision is upheld, both Apple and Google might face considerable financial challenges as a result of the ruling.

The impact of the antitrust lawsuit ruling extends beyond just one company. The potential termination of the ISA would result in significant financial ramifications for both Google and Apple. The estimated revenue figures highlight the substantial contributions of the agreement to the financial results of both companies. As the appeal process unfolds, the future of this long-standing partnership and its financial implications remain uncertain.