Apple profits at risk from DoJ antitrust case

Tuesday 09 February 2021

Portfolio insights, Portfolio updates

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When the US Department of Justice (DoJ) brought its antitrust case against Google in October 2020, it flagged the large payment made to Apple for positioning it as the default search engine in Apple’s Safari browser.

Most significantly, Google has had a series of search distribution agreements with Apple, effectively locking up one of the most significant distribution channels for general search engines.

US Department of Justice in its antitrust filing against Google 2020

The DoJ estimated the payment was valued between $8 and $12 billion.  

We believe the outcome of the DoJ antitrust case has more serious implications for Apple than for Google. The Google payment goes directly to Apple’s bottom line, with no overhead. The company reported profit of $57 billion in 2020, making Google’s contribution around 20%, a hefty loss to bear.


If the court finds the payment should be prohibited, Google’s costs would decline. The ban could expose Google to increased competition. However, it is likely most Safari users would select Google as their default search engine, causing minimal impact on Google’s user base. Moreover, Google’s operating margin for search is about 30%, so it would need to lose between $33 and $47 billion in revenue before its bottom line was hit.

While we believe Apple is a fantastic business, we don’t believe the current downside risks are fully reflected in its share price. This was part of the reason why we sold our Apple position last month and continue to have Alphabet as one of our largest positions in the portfolio. 

About the Author
Alex Clunies-Ross, CFA

Alex Clunies-Ross, CFA

Head of Research

Alex commenced his career with Swell in August 2015 and developed many of the technical models and quantitative screens used to manage Portfolio investments and research. Alex directs investment team research projects in addition to his responsibilities for allocated investments in the Swell Global Portfolio.

Alex earned the right to use the CFA designation granted by the CFA Institute in 2021. He holds a Bachelor of Commerce (Finance) from Griffith University and was an inaugural member of the Griffith University Student Investment Fund.

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