Google could potentially lose billions in gross revenue if Apple switches to a different default search engine, according to a UBS research note Monday. Neither Apple nor Google have detailed when the agreement expires, but reports put the time frame in 2015, the note said.
Google this year stands to bring in about $7.8 billion in gross revenue—about 10 percent of total revenue—from its existing search engine deal with Apple, according to UBS.
If Apple switches to a competitor, that could represent a 5 percent headwind, or about $3.9 billion, to 2015 gross revenue, the note said. UBS made those projections under the assumption that 50 percent of Apple iOS users switch their default search engine back to Google.
Last week, Facebook announced it had 2 million active advertisers. That's still half of Google's total, but Facebook's growth means the social network has become a fierce competitor for advertising revenue.
"The biggest pushback we hear from investors is that Google's core search advertising business will not translate (monetize) as well to an increasingly mobile-centric, application-based world, particularly compared to mobile-first peers like Facebook," Baird's note said.
Despite the potential roadblocks, UBS remains bullish on Google, raising its price target to $670 from $630, and standing by its "buy" rating on the stock. Google's shares traded at $569 midday Tuesday.
Ads targeted to desktop search users may decline as the Web shifts toward mobile devices, but Google remains the strongest competitor for mobile ad revenue, UBS analysts suggest.