The Justice Department’s antitrust trial against Google has clear ramifications for
Apple,
which rakes in billions of dollars in payments from
Alphabet
to make Google the default search engine on iPhones and the Safari web browser.
The case could also provide an opening to
Microsoft
(MSFT) to gain some search market share for its Bing search engine—the distant No. 2 player to Google—if the Alphabet (GOOGL) unit loses the case. But the payoff will likely be modest at best.
In a research note Monday, Bernstein analyst Mark Moerdler weighed in with an assessment of how Microsoft might be affected by a court ruling in the government’s favor. The judge is expected to rule in early 2024. Moerdler notes that, initially, Microsoft shares would likely react favorably to a win for the Justice Department.
“Bing is Google’s main competitor, so naturally, a ruling that prevents Google from paying smartphone manufacturers and wireless carriers to make Google their default search engine will be viewed as favorable for Bing, which could be a catalyst for the stock,” he writes.
But this isn’t likely to be a situation where Microsoft simply assumes Google’s role as Apple’s (AAPL) favored search engine.
“A likely outcome would be a switch from default engines to choice screen, which would moderately benefit Microsoft,” Moerdler writes. “Even though consumers typically tend to stick with the search engine they’ve been using when given the choice, this at least opens the door for some small portion of users to potentially switch over.”
Bing could steal away a couple of percentage points of market share and double its search revenue without meaningfully reducing Google’s commanding 90%-plus market share in internet search, he contends.
But as Moerdler also notes, any ruling is likely to be appealed, a process that could take years. That would suggest little near-term benefit for Microsoft even from a ruling in favor of the government. He notes that in the Justice Department’s case against Microsoft more than 20 years ago, it took many years to reach an eventual settlement.
Moerdler adds that the best case scenario for Microsoft would be one where Apple—and Android device makers that now default to Google for search—abandon Google and replace it with Microsoft Bing.
“While certainly a long shot, this would be a very, very good thing for Microsoft if it somehow came to pass,” Moerdler writes. “Pre-installation can create a very powerful status quo bias. Users who find search and browser apps pre-installed on their devices are likely to stick to these apps.”
But Moerdler finds it unlikely the court sets up a scenario where one large tech company is simply dethroned in favor of another one.
He also notes the worst case scenario for Microsoft is simply that the government loses, cementing Google’s dominant position, and leaving the status quo intact.
And Moerdler adds that even a win by the government carries risks for Microsoft, potentially emboldening regulators to become more aggressive on the antitrust front. He sees some risk the Justice Department could try to prevent the bundling of Microsoft Office with its Teams communications suite, for instance.
Moerdler keeps his Outperform rating and $406 target price on Microsoft shares.
Write to Eric J. Savitz at [email protected]
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