Apple quietly makes billions from Google Search each year, and it’s a bigger business than Apple Music (AAPL, GOOG, GOOGL)

Tim Cook

Google paid Apple $9.4 billion in 2018 to be the default search engine on the iPhone, according to a new Goldman Sachs estimate.
This makes Google’s payment to Apple worth as much as 23% of Apple’s services business, which the company has highlighted as its growth engine as iPhone sales slow.
Google could pay Apple as much as $12.2 billion next year, according to Goldman’s model.
Still, Apple’s services business may see slowing growth in the near future if it does not release a new content bundle, the Goldman analysts argue.

Google pays Apple to be the default search engine on the iPhone, a deal worth billions to Cupertino.

In 2018, Google may have paid Apple as much as $9.46 billion in what’s called “traffic acquisition costs,” or TAC, according to Goldman Sachs analyst Rod Hall, citing Google financial results.

The amount Google pays Apple could increase to $12.2 billion next year, and $15.6 billion in 2021, according to the Goldman estimate, although TAC growth is slowing, Hall says.

Hall’s argument is that while Apple has recently drawn investor focus to its “services” revenue stream, the composition of that is weighted towards things like TAC, and the 15% to 30% fee Apple collects from the App Store, instead of recurring monthly subscriptions like Apple Music, which is often what Apple executives focus on in conversations with investors.

“Combining our TAC work with App Store data from Sensor Tower we conclude that TAC and Apple’s share of app store downloads represented 51% of Services revenues in 2018 and an even larger 70% of Services gross profits,” according to the Goldman note distributed on Monday.

Apple’s services business totaled about $37 billion in the company’s fiscal 2018, and investors hope its growth will account for …read more

Source:: Business Insider


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