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Apple Stock Outlook and Whether to Launch Its Own Search Engine and Eliminate Google From the Equation?

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Apple stock was trading at $152.07 as of 11:55 AM EDT. 

The development of Apple’s own search engine has long been predicted, but is it necessary?

When it comes to Apple’s (NASDAQ: AAPL) next products and new technology devices, rumors are everywhere. Do you still have an Apple TV (which, of course, has access to a ton of services)? There is continuous speculation that an Apple AR/VR headset is allegedly in development, and rumors (or perhaps hopes?) continue to circulate regarding a potential Apple Car.

It’s not just hardware though. Furthermore, rumors of Apple creating its own internet search engine are frequently heard. For Alphabet (GOOGL 0.76%) (GOOG 0.50%) and Google, which is the company’s main revenue generator, it would be bad news. Apple’s wealthy hardware business relies on Google, so would it actually make such a move and exclude Google from the mix?

Apple Stock Forecast

Hedge funds rank Apple stock (NASDAQ:AAPL) as one of the best stocks to buy. After Morgan Stanley stated that the iPhone 14 cycle is stronger than expected, observing relative lead times and early data from China, Apple stock (NASDAQ:AAPL) was among the most notable big-tech gainers on September 14, rising 1.6%. The investment company stated that early pre-order commentary from places like China and India is “equally robust” and that early adoption is “a touch stronger than we expected.”

Despite the growth of services, Apple Inc.’s (NASDAQ:AAPL) financial performance is primarily driven by the iPhone, which generates roughly 50% of overall sales and gross profit, according to Bernstein analyst Toni Sacconaghi, who spoke to investors on September 14. The analyst kept the shares’ Market Perform rating and $170 price target while projecting a 1% increase in total revenue to $399 billion in 2023 and an EPS of $6.26.

Apple stock (NASDAQ:AAPL) was included in 128 hedge fund portfolios in the second quarter, down from 131 funds in the first. With over 895 million shares valued at $122.3 billion, Warren Buffett’s Berkshire Hathaway is the company with the greatest holdings in Apple Inc. (NASDAQ:AAPL). 

Incredible Power and Superb Hardware

An overview first. The majority of Apple’s business is still in the hardware sector, and the company has done a tremendous job of luring customers into and keeping them in its ecosystem (which includes Macs, iPhones, iPads, Watches, and other products) over the years. This tactic is known as “land and expand”: Apple can promote other gadget kinds by highlighting how tightly connected all of them are after a sale (an iPhone, for instance) is recorded.

But over time, the business strategy that is centered on devices has been gradually evolving. The services division of Apple’s 2022 fiscal year generated an income of $19.6 billion from software and other sources unrelated to the selling of computing devices in Q3 (which ended June 25). The services sector was Apple’s fastest-growing one with a 12% growth from the previous year and roughly 24% of overall revenue.

Apple Stock; Not Likely to Be Priced for a Recession

Alphabet does the opposite. The company sells software and largely makes money via advertising. Even if it has been pushing closer to the hardware market, ads continue to be the main source of income for its online business. It is significant for Google to have access to the 2 billion active devices that Apple has installed worldwide, most of which are iPhones. It apparently pays billions of dollars to be the default search engine on Apple devices. 

The amount Google pays Apple for access to its internet search engine is a secret, according to both Google and Apple. Estimates, however, suggest that it will be $15 billion in 2021 and will rise to between $18 and $20 billion in 2022.

In other words, internet search advertising contributes significantly to Apple’s development in services (and substantially to the entire revenue sector in that market).

Why not just utilize those substantial payments from Google to create your own search engine and eventually dump Google altogether, given how tightly Apple controls its network of devices? Perhaps one day it will make sense. All in all, even after the significant traffic acquisition expenses (TAC) paid to Apple, Google’s ad business makes fairly solid profits. In Q2 2022, Google alone made an operating profit of $22.8 billion, or a profit margin of 36%, in Q2 2022. This segment’s revenue was mostly comprised of advertising.

The Apple royalty figures, incidentally, are derived from Alphabet’s TAC payments. In the first half of 2022, according to Alphabet, Google’s TAC exceeded $24 billion. Estimates suggest that around 40% of the TAC (or between $18 and $20 billion per year) goes to Apple if Apple’s mobile operating system accounts for just over 50% of the U.S. market share and close to 30% globally. The remaining market share is made up of Android, which Alphabet provides.

Are the Foundations for an Apple Search Engine Already Being Laid?

Apple (NASDAQ:AAPL) might already be conducting exploratory research on a competing internet search engine. After all, the initial acceptance of payment from Google by Apple is already under antitrust regulatory review. Nevertheless, Apple has long since made use of its App Store to monetize search through advertisements. Software developers can pay Apple to advertise their software in order to get more Apple customers to see it.

Featured Image-  Megapixl @ Alexeyboldin

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