This is a very good and important question - It's a lose-lose for both companies and will hurt Alphabet more in the longer term. Alphabet estimated they might lose between 60-80% in iOS search query volume in this scenario which equates to $28.2 billion to $32.7 billion revenue (also note Alphabet pays Apple nearly $20 billion or 16.7% of Apple's operating profits each year) so there's a total operating profit loss of around $8.2 - $12.7 billion loss for Alphabet in the short-mid term.
In this scenario I can imagine Alphabet doing the following to counter this risk:
- Bigger push with Pixel phones and more investments in Android OS to close the gap to Apple
- Significantly more investments in its Gemini AI stack and core search capabilities
- Uptick in marketing and advertising spend to support usage for all Alphabet's apps.
- Finally, a lot more product bundling, similar with what Microsoft does. e.g. chrome and maps, search and workspace etc.
Finally, 18x the operating profit loss from the potential DOJ scenario is around $228.6 billion (or 11% of its current market cap) so would expect an -11% knock to share price and also my calculations of its intrinsic valuation.
What's your thought about if DOJ force google to stop paying Apple as default search egine?
This is a very good and important question - It's a lose-lose for both companies and will hurt Alphabet more in the longer term. Alphabet estimated they might lose between 60-80% in iOS search query volume in this scenario which equates to $28.2 billion to $32.7 billion revenue (also note Alphabet pays Apple nearly $20 billion or 16.7% of Apple's operating profits each year) so there's a total operating profit loss of around $8.2 - $12.7 billion loss for Alphabet in the short-mid term.
In this scenario I can imagine Alphabet doing the following to counter this risk:
- Bigger push with Pixel phones and more investments in Android OS to close the gap to Apple
- Significantly more investments in its Gemini AI stack and core search capabilities
- Uptick in marketing and advertising spend to support usage for all Alphabet's apps.
- Finally, a lot more product bundling, similar with what Microsoft does. e.g. chrome and maps, search and workspace etc.
Finally, 18x the operating profit loss from the potential DOJ scenario is around $228.6 billion (or 11% of its current market cap) so would expect an -11% knock to share price and also my calculations of its intrinsic valuation.