Alphabet’s (GOOG) Google faces uncertainty around its search business, with investors now factoring in a possible loss of exclusivity with Apple (AAPL), Oppenheimer said in a note emailed Wednesday.
“Google generates 31% of gross search revenue ($61B) via Apple devices and pays 36% to Apple for exclusivity, resulting in 19% of net ad exposure,” Oppenheimer said. However, Google would need to retain only 65% of Apple search activity if there were no traffic acquisition cost payment, or 75% if the TAC decreases to 15%, it added.
This could cap price-to-equity ration at 20, the brokerage said in the note.
However, a survey showed that 75% users would go for Google if they had to pick a default search, and if Apple removed Google from default search, 78% would download Chrome, Oppenheimer said.
The US Department of Justice’s case against Google’s Adtech unit is also a headwind which could translate to under 2% of its equity value. Google’s offer to spin off its ad business was denied by European regulators. It is now proposing to lower take-rate from publishers in ad tech to 5% to settle with the DOJ, Oppenheimer said.
Oppenheimer lowered its price target for Alphabet to $185 from $210 with an outperform rating.