Apple (AAPL) Could Acquire Search Engine DuckDuckGo - Bernstein
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Bernstein analyst Toni Sacconaghi reiterated an Outperform rating on Apple (NASDAQ: AAPL) noting that it would be easy for Google (NASDAQ: GOOGL) to break off from Apple rather than paying $7-8B per year to be included as the default iOS search engine. The likely reason is that it hasn't is Microsoft's (NASDAQ: MSFT) Bing. Microsoft paying Apple $7B+ to promote Bing isn't beyond the realm of reason, given that Bing would arguably only have to capture only 1/3 of what Google currently does for it to be economically accretive and is Google willing to risk a resurgence of Bing to save a few billion dollars?
On the other hand, Apple may consider acquiring its own search engine, to capture the lucrative advertising stream for themselves and/or serve as a "stalking horse" to pressure Google. The analyst believes it could buy the privacy-centric, #4 U.S. search engine, DuckDuckGo for <$1B. This amounts to less than a week's worth of cash flow.
So will Apple enter the search market? The analyst stated: "Google is clearly the dominant force in search today. However, we suspect the company's fear of "rocking the boat" – which could compromise $15B in profits it captures today from iOS – may ultimately limit its freedom of action with Apple. Conversely, Apple may be in a stronger position than at first glance, given it controls the keys to the kingdom on who can monetize iOS search. However, it remains uncomfortably dependent on Bing to act as a counter weight to Google – hence our suggestion that Apple acquire its own search engine. Finally, Microsoft Bing may (counterintuitively) have the most "option value" vis-à-vis the status quo – although it remains to be seen how aggressively it will pursue this opportunity."
Shares of Apple closed at $331.49 yesterday.
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Related EntitiesSanford C. Bernstein, Definitive Agreement, Toni Sacconaghi
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