Evan Lorenz on competition heating up in Big Tech

On Oct. 20, the U.S. Department of Justice filed a suit against Alphabet [parent company of Google], alleging that the search giants payments to Apple, Inc. to make Google the default search engine contravenes U.S. law. To put the Department's suit in perspective, Alphabet pays Apple an estimated $8 billion to $12 billion per year, a sum equal to between 12% and 18% of Cupertino's operating income. Nearly half of all Google searches originate from Apple devices. This is not a parking ticket. However, there appear to be contigency plans. Two-and-a-half years ago, Apple hired John Giannandrea, Google's head of search.  An Oct. 28 report by the Financial Times found that iOS 14, the latest iPhone operating system, used Apple's home-grown search engine for certain user suggestions.

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As we go to press, Apple trades at 35.6 times trailing earnings and Alphabet at 36.5 times.  The stocks seem priced for everything - except competition.

~ Evan Lorenz, "Comity in Washington," Grant's Interest Rate Observer, November 13, 2020