Toni Sacconaghi on why Apple needs its own search engine (video)

Bernstein's top Apple analyst made the case for the company acquiring DuckDuckGo on CNBC's The Exchange Friday:

Google pays $8 billion a year and ultimately generates $25 billion a year from search on iOS, on Apple's operating system. And the reason it pays that much we believe is that if it doesn't someone else—like Microsoft—might.

The worry of course for Apple is let's say one day Microsoft says "search isn't that important to us, we have other priorities. In which case there is no counter bid and Google could turn around and say we're only going to pay you half a billion Apple, and that would be very risky to Apple.

And hence, could you have a stalking horse, is there something Apple could do that would provide an inexpensive insurance policy to keep Google and/or Microsoft at the table bidding for this asset.

Cue the video:

Maintains Market Perform rating and (deep underwater) $285 price target.

My take: Sacconaghi concludes that privacy-oriented DuckDuckGo is the search engine Apple would probably want to buy, a conclusion NYU's Scott Galloway also reached. See Galloway's Four Weddings and a Funeral.

10 Comments

  1. Dan Scropos said:
    I’ve tried them all, as I’m not a big fan of Google, but their search engine is far and away the best. Also, other outlets refute the numbers he’s touting:

    “Google will reportedly pay Apple $9 billion in 2018 and $12 billion in 2019 to remain as Safari’s default search engine, according to Business Insider.”

    This relationship must be mutually beneficial or these longtime rivals wouldn’t be dancing together. Apple could be getting as much as $15 billion in 2020 ans that’s nothing to sneeze at.

    4
    June 14, 2020
    • David Drinkwater said:
      “Google pays $8 billion a year and ultimately generates $25 billion a year from search on iOS, on Apple’s operating system.”

      If true, this would also be a pretty good ROI for Google, so where is the question about whether or not this benefits both sides?

      My question would be: “with $8 billion a year, what could Apple *not* afford to develop as a search engine?”

      0
      June 14, 2020
  2. David Emery said:
    I’ve been using DuckDuckGo for years, and it’s usually good enough. Maybe once every 6 weeks I’ll be unsatisfied and go to Google.

    But I’d suspect substantial anti-trust review if Apple tried to buy DuckDuckGo. I’m not saying Apple wouldn’t succeed, but there’d be a lot of publicity and discussion around the “Apple Monopoly”.

    So maybe this is one of Toni’s “right twice a day” moments.

    5
    June 14, 2020
  3. Jerry Doyle said:
    These so-called experts are throwing out numbers they have no idea are correct. Scott Galloway writes explicitly that Google pays Apple $12B annually to be the iOS default search engine. Toni Sacconaghi says Google pays Apple $8B annually to be iOS default search engine. That’s a 33% error in billions. These discrepancies makes you wonder what else is skewed badly in these so-called experts respective writings & verbiage. Do either man know clearly of what he speaks, or does he speak in the hope of being listened, or in Scott Galloway’s intent, to shock his readers and listeners for effect integrated with his omnipresent sexual innuendos and atheistically perspective on his life.

    Google already is the predominant search engine in town gunslinging over 88% of searches. So, that leaves all other search engines scrambling for the leftovers, less than 12 percent morsels reminding me of the parable of the rich man and Lazarus in Luke 16:21.

    I write off Toni Sacconaghi’s concerns of lack of competition amongst search engines. There already is a high degree of little competition since Google dominates over 88% of the market. Does anyone not believe that Apple has the firepower, the ingenuity, the resources to quickly ramp up a viable default search engine of its own, if Apple saw Google attempting to leverage itself through reduced compensation at Apple’s expense using Apple’s 1.5B installed base of users? I don’t see a problem here.

    5
    June 14, 2020
    • Romeo A Esparrago Jr said:
      I agree with Jerry. Apple has what seems to be more critical priorities like COVID, Retail Stores, rumored ARM Macs, Trade War, etc.

      Does Toni “$285 at $338.80” Sacconaghi know so much of a high probability of this risk to Apple that they should listen to him? Where’s the beef?

      4
      June 14, 2020
    • Fred Stein said:
      Thanks Jerry for digging up the data and adding insight.

      Besides Toni’s bad data, one questions wheter Microsoft stands ready with a realistic counter offer; And that Apple would choose Bing. On the other side, would Google risk losing 15% of their top line ($25B/$166B)? Google’s price/sales ratio is 5.86%, so that implies $149B of market cap impact.

      1
      June 14, 2020
  4. Kirk DeBernardi said:
    Remember — one key element of this Apple/Google relationship is that the Apple eyeballs have money and they spend it.

    2
    June 14, 2020
  5. Fred Stein said:
    Simple:

    Google sells ads. Apple has the best consumer demographic.

    1
    June 14, 2020
  6. Steven Philips said:
    Bernstein’s should give Toni a good dressing (Italian) down. Then he should be Sacc’d.

    3
    June 14, 2020
  7. Bart Yee said:
    Tony continues to spout click bait comments about how poor Apple should try to make even more money by buying this, and doing that, and developing such, as if Apple isn’t doing well (Apple is doomed) and needs help from an analyst to chart its business future.

    I believe he never calls out Cook, Maestri, Williams, etc. by name but IMO he’s always implying Apple management doesn’t know what it’s doing. Since Toni has been known as a contrarian, I suggest we take that stance and do the opposite of whatever he recommends. Bernstein clients would have done much better following that advice.

    0
    June 15, 2020

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