Google's antitrust lawsuit could pose a risk to Apple's revenue, Bank of America says

Published Wed, Oct 21 20209:36 AM EDTUpdated Wed, Oct 21 20202:01 PM EDT

(This story is for CNBC Pro subscribers only.) The long-expected antitrust lawsuit against Google could inflict some collateral damage on its partner Apple , according to Bank of America. The Justice Department on Tuesday filed a lawsuit against Google alleging the company has unlawfully maintained a monopoly in search. To secure preset default and other access to the browser on Apple devices, Google pays a significant licensing fee to the iPhone maker, which is estimated at $10 billion a year, Bank of America noted. This revenue source for Apple, about 15% of its total services sales, could be at risk due to the lawsuit, the bank said. "Given that this revenue translates directly to profit, we estimate almost all the rev flows to Apple's net income and can account for up to $0.50 in EPS or approx. 10% of EPS," Bank of America analyst Wamsi Mohan said in a note. As a possible result of the antitrust lawsuit, Apple users would have to opt in to using the Google search feature on Apple devices, which would put other competitors on equal footing as a gateway to search, the bank said. "A potential response could be to no longer retain the revenue sharing agreement," Mohan said. "Ultimately any changes to the rev share agreement could lead to a potential rev/margin headwind in services that may result in the valuation multiple contracting." The DOJ name-checked Apple in its complaint against Google's alleged monopoly power. It estimated that the Google-Apple agreement covers roughly 35% of all general search queries in the U.S. In 2019, Google said almost half of its search traffic originated on Apple devices, the DOJ complaint noted. Google said the Justice Department's suit is "deeply flawed." "Google pays Apple billions to be the default search provider, in part, because Google knows the agreement increases the company's valuable scale; this simultaneously denies that scale to rivals," the lawsuit said. Bank of America has a neutral rating and a $140 12-month price target on Apple. The price target represents a 19% gain for Apple shares from Tuesday's close of $117.51.

iOS 14 logo of the iOS mobile operating system is seen displayed on a mobile phone with an Apple logo in the background.

Pavlo Gonchar | LightRocket | Getty Images

(This story is for CNBC Pro subscribers only.)

The long-expected antitrust lawsuit against Google could inflict some collateral damage on its partner Apple, according to Bank of America.

The Justice Department on Tuesday filed a lawsuit against Google alleging the company has unlawfully maintained a monopoly in search. To secure preset default and other access to the browser on Apple devices, Google pays a significant licensing fee to the iPhone maker, which is estimated at $10 billion a year, Bank of America noted. This revenue source for Apple, about 15% of its total services sales, could be at risk due to the lawsuit, the bank said.

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