Full restriction of TAC payments; worst-case scenario for Google and Apple - Morgan Stanley
In a note to clients Friday, Morgan Stanley analysts assessed the DoJ vs. Google trial and why it matters to both Alphabet (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL).
The trial is scheduled to begin on September 12, with the DoJ alleging that Google illegally obtained its dominance in search and search advertising.
According to the analysts, the key question is whether a final ruling could result in changes to Google's Search contracts with hardware OEMs (i.e. Apple, Samsung (KS:005930), etc.), wireless carriers, and web browser companies.
«We would expect the judge to focus on Section 2 of the Sherman Act… which makes it illegal to acquire or maintain a monopoly through improper means,» they wrote. While the initial ruling is possible by the end of 2023, the appeals process could push the final decision into mid-to-late 2024.
According to the analysts, there are three potential scenarios: Status Quo, Structural Contract Changes, and Full TAC Removal.
For the status quo scenario, they stated: «If the Court rules that there is legal basis for Google's TAC payments to Apple, Samsung, and others, then there likely won't be a material change to the nature of these contracts… and as a result no change to Google or Apple's P&L.» This is the best-case scenario for Apple and companies that receive TAC payments from Google, while it will also be positive for the search engine giant too, Morgan Stanley believes.
For structural contract changes, the analysts said: «In this scenario, the Court could rule that Google cannot pay for default search engine placement, but that Apple and others are still allowed to charge variable TAC based on search revenue generated. TAC payments would fall, but the removal of exclusivity could cause some
Read more on investing.com
