Friday, January 29, 2016

Apple Paid $1 Billion By Google For Default Search Status

Apple Paid $1 Billion By Google For Default Search Status

By Richard Saintvilus | Updated January 25, 2016

Like taking candy from a baby? Not exactly. But investors of Apple, Inc. (AAPL) shouldn't complain that the tech giant gets $1 billion from its hated rival for essentially being a toll collector. You read that correctly. And while shares of the tech giant have been under pressure since the start of the year, falling 5% thanks to analysts' reduced estimates, this recent development affirm additional strength of the iPhone.
Google Paying the Piper
Alphabet Inc. (GOOGL) is paying the iPhone maker a hefty ransom just for allowing Google's search bar to remain on the iPhone. And here we were thinking over the past couple of weeks that the iPhone had become Apple's weakest link. Does this change things? It should.
While citing court transcripts detailing copyright litigation against Google by Oracle Corp (ORCL), Bloomberg on Thursday reported that Apple received $1 billion from Google l in 2014. Google has an arrangement with Apple that grants Apple a percentage of all revenue Google rakes in via the iPhone. This would the first official quantifiable measure from either company of what Google actually pays Apple -- after several years of rumor and failed guesses.
This revenue-sharing agreement demonstrates the power of the iPhone and -- to some extent -- how dependent Google has become on Apple's continued success. At the same time, the fact that Google is willing to shell out $1 billion just keep people using its search tool Apple products denotes the value of Apple's consumer base. On the flip side, while Apple CEO Tim Cook has relegated Google's ad-based business model as an intrusion of consumers' privacy, Cook is likely laughing all the way to bank.
The Bottom Line
Apple is scheduled to report first quarter fiscal 2016 earnings results Wednesday after market close. And while $1 billion won't amount to much, given Apple's cash hoard of about $206 billion, it nonetheless denotes the strength of its business and brand. According, with AAPL stock still trading now down some 25% from its 52-week high, fears about reduced iPhone shipments are already priced in, making Apple a compelling play ahead of next week's earnings.

Read more: Apple Paid $1 Billion By Google For Default Search Status | Investopedia
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