Apple (AAPL) Could Acquire Search Engine DuckDuckGo - Bernstein

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."

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $331.49 yesterday.

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