USA v. Google: What's at Stake, 3 Potential Scenarios, Why It Matters to GOOGL and AAPL - MS

Morgan Stanley analyst Brian Nowak: "3 Potential Scenarios: Status Quo, Structural Contract Changes, Full TAC Removal: In '25 we estimate that Google will pay Apple and OEMs $28bn of US related mobile distribution TAC (~$14bn to Apple). Our scenario work helps frame the impact of TAC contractual changes vs the risk of potential traffic shifts away from Google Search. Bottom line, GOOGL would likely need to see 15%+ search traffic losses in order to make TAC reductions NPV negative. Given the high utility and continued innovation of GOOGL's products, differentiation of the logged ecosystem, etc, this to us seems like a low probability risk. For Apple, in a worst-case scenario (total TAC elimination globally), we see 15% EPS downside risk (~$1.20 FY25 EPS), but there are a number of other potential less severe outcomes that are possible, and we would ascribe a low probability to this worst-case scenario playing out. Note that these scenarios are not explicitly embedded into our bull or bear case valuations. Scenario 1 is currently embedded in our base case valuation."

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