Alphabet's Google is paying Apple billions of dollars a year to remain the default search engine on iOS devices such as the iPad and iPhone, according to a research note from Bernstein. Citing court documents that indicate Google paid Apple $1 billion in 2014, Bernstein analyst A.M. Sacconaghi Jr. made a case that the number will triple in fiscal 2017 to $3 billion. Because the payments to Apple are "nearly all profit," Sacconaghi said Google may account for 5% of the iPhone maker's total operating profit this year, and has accounted for 25% of operating-profit growth over the past two years. The analyst cautioned that at some point in the future Google could decide that its search business is secure and no longer needs to pay the licensing fee. But, as Apple's customer base continues to grow, as well as its search usage, Apple may be able to generate additional licensing revenue through "other advertising-intensive apps," according to the Bernstein note. Sacconaghi has a $175 price target for Apple stock, which is up 1.6% in late-afternoon trading. Google shares are up nearly 1%.
Continue Reading Below
Copyright © 2017 MarketWatch, Inc.