Apple (AAPL) has made huge revenue from its licensing cooperation with Google, which makes Google the default search engine for all Apple products. Although neither company disclosed the specific amount of the transaction. However, we can get an approximate data by looking at Google's traffic acquisition cost. At present, Google's traffic acquisition cost is $30 billion a year. Over the past five years, this cost has continued to grow at an annual rate of 18%. Apple is still the biggest beneficiary, which makes Apple's service business produce a better profit margin. The New York Times mentioned in a report that the U.S. Department of justice will investigate the transaction between Google and apple. Reported that with this cooperation with Google, apple received $8 billion to $12 billion in revenue from Google, up from $1 billion in 2014. Bernstein analyst Toni sacconaghi also estimates that through this transaction, Apple will earn $15 billion in revenue in 2021. According to his report, this figure may climb to $20 billion by 2022. The EU is also stepping up its efforts to limit the monopoly of technology giants. Recently, Italy imposed a series of fines on apple and Google for their "data violations". If the United States or the European Union prohibits Apple's licensing cooperation with Google, we may see the domino effect in all international regions. South Korea has also been investigating Apple's payment and data operations. This will have a huge negative impact on Apple's stock, because one of Apple's most important sources of income is to obtain high profit margin income by relying on the authorization cooperation with Google, and then invest in other low profit margin services, such as TV +, music streaming, etc. Any negative news in this regard will lead to a significant adjustment in Apple's share price, which investors should pay close attention to. Cooperation with Google is important for apple The cooperation between apple and Google has brought apple a source of revenue with high profit margin. And any revenue from this transaction may be a net profit for apple, because Apple has low requirements for developing any new products or services in this regard. Although apple and Google have not released detailed financial data in this regard (which makes it impossible for us to carefully analyze the impact of this transaction on both sides), we can get a rough data by looking at Google's traffic acquisition cost in the past few years. Google's traffic acquisition cost has increased to more than $30 billion a year, and has been growing at an annual rate of 18% in the past five years. According to the Wall Street Journal, Apple will get the largest share, and its licensing revenue from Google has reached $8 billion to $12 billion. If we calculate the average licensing revenue of $12 billion in 2020, this will be close to 15% of Apple's net revenue. This is the main reason why the profit margin of Apple's service business is relatively high. The profit margin of Apple's music streaming media and other businesses is very low, as we can see from spotify's financial report. EU regulators The U.S. government may be more active in antitrust investigations against Google, and may also gain support from both parties. The transaction between Google and Apple will be the first thing that antitrust regulators will focus on. The deal gives Google's products a better exposure in Apple's ecosystem, reducing the appeal of other search engines. Due to the importance of licensing revenue to apple, any antitrust investigation on Google may lead to investors' bearish sentiment towards Apple's stock. Another important source of Apple's revenue is Europe, where more than 25% of the company's revenue comes from. At present, the EU is also formulating some strict rules for science and technology giants, and has put forward the digital market act, which will impose heavy penalties on science and technology giants who only promote their own products and partner products. This means that a technology company will not only promote its own products in its ecosystem, nor reduce customers' choice of products or services from other competitors. Due to the close cooperation between apple and Google, the position of Google's search engine in Apple's operating system can be regarded as a sign of self preference and limiting customer choice. So British regulators are making similar efforts to limit Google's cooperation with apple. Market dynamics In addition to the threat of regulators, the transaction between apple and Google may also change significantly due to market dynamics. In the large-scale growth stage of smart phones, Google needs high-quality space within IOS, including in all regions of the world, emerging economies and regions where the smart phone market is close to maturity. On the other hand, the next growth area is smart home devices, smart speakers, smart displays and other areas that are rapidly becoming popular. Google is a major player in this field and occupies a large market share together with Amazon (AMZN). Apple's market share is only single digits. In order to effectively compete with Google and Amazon's products, Apple was forced to sell the homepod Mini for less than $100. In the next few years, the search share of smart speakers may continue to grow. This will reduce Google's dependence on the apple ecosystem. Google is also emerging in the field of smart phones. The latest pricing of pixel phones allows them to enter the mid-range market and effectively compete with higher priced iPhones. Therefore, Google pixel's new strategy is to increase shipments and reduce dependence on apple. Apple is also developing its own search engine and implementing a "privacy first" strategy in this field. Because of Apple's ecosystem, apple must develop a better search engine than Google to compete with Google. As regulators oppose the authorization cooperation with Google, the resistance increases. We should see that Apple will invest more resources and funds in developing its own search engine in the future. Impact on Apple's earnings per share and valuation As mentioned above, nearly 15% of Apple's net revenue comes from the cooperation agreement with Google. Most of the growth has occurred in the past five years. This means that if Apple terminates this cooperation agreement or reduces the payment terms, it will not only reduce Apple's overall net income, but also reduce the management's ability to invest in other low margin services, such as TV +. Compared with the historical average, Apple's forward P / E ratio is quite high. The company's earnings per share forecast for the next two fiscal years is close to $6.50, which means that according to the index, the trading price of apple stock is close to 25 times. Any significant regulatory resistance to the cooperation agreement between apple and Google will have a direct impact on Apple's earnings per share, resulting in investors' bearish sentiment on the stock. Investors should pay close attention to the dynamics of Apple's cooperation with Google to measure its impact on Apple's share price. conclusion In the past few years, Apple's licensing revenue from Google has been one of the company's most important sources of revenue. This highly profitable business is currently facing resistance from regulators in all important regions, including the US domestic market. The revenue from licensing cooperation with Google accounts for nearly 15% of Apple's net revenue. Therefore, any decline in revenue in this regard will lead to a sudden decline in Apple's earnings per share. (Xinhua News Agency)