Apple Event

Currently, one of the biggest tech company is going through a rough phase and is struggling with the sales of the iPhone. But the company is making good money from Google. Google pays Apple to be the default search engine on the iPhone, a deal worth billions to Cupertino. Google paid Apple nearly $9.5 billion (roughly Rs. 67,000 crores) in traffic acquisition costs (TAC) in 2018, thereby contributing massively to the iPhone maker’s services revenue, estimates Goldman Sachs.

The amount Google pays Apple could increase to $12.2 billion next year, and $15.6 billion in 2021, according to the Goldman estimate, although TAC growth is slowing, Hall says.

Hall’s argument is that while Apple has recently drawn investor focus to its “services” revenue stream, the composition of that is weighted towards things like TAC, and the 15% to 30% fee Apple collects from the App Store, instead of recurring monthly subscriptions like Apple Music, which is often what Apple executives focus on in conversations with investors.

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“Combining our TAC work with App Store data from Sensor Tower we conclude that TAC and Apple’s share of app store downloads represented 51% of Services revenues in 2018 and an even larger 70% of Services gross profits,” according to the Goldman note distributed on Monday.

Apple’s services business totaled about $37 billion in the company’s fiscal 2018, and investors hope its growth will account for the majority of Apple’s total revenue growth.

Goldman analysts suggest that in order to hit those targets, Apple will need to launch a new content bundle, potentially bundling a subscription to online video, magazines, and online storage.

“We expect Apple to launch an ‘Apple Prime’ type package in late March though the profitability and attractiveness of this are key to better Services growth and profits than we currently model,” the Goldman Sachs analysts wrote.

In 2017, Bernstein analyst Toni Sacconaghi estimated that Google pays Apple $3 billion per year in TAC costs. The only hard number we know for sure is that Google paid Apple $1 billion in 2014, thanks to court filings.

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“Apple will need to add mid to high single digits growth back to Services revenues through successful launch of the ‘Apple Prime’ bundle including original video that we expect to be rolled out this Spring/Summer,” Goldman Sachs was quoted as saying in a note on Monday.

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