Alphabet Inc.’s Google (GOOGL) pays Apple Inc. (AAPL) about $3 billion per year, up from just $1 billion three years ago, to remain the default search engine on iOS devices, analysts at Bernstein wrote in research note Monday.

A report conducted by Bernstein’s Toni Sacconaghi suggests that Google’s licensing fees make up a large bulk of revenues for Apple’s fast-growing services business, highlighting both pros and cons of the payments. The investment firm has an outperform rating on AAPL, along with a $175 price target, indicating an approximate 9.5% upside from Monday close. (See also: Apple Will Launch iPhone 8 On Time After All: KGI.)

Google’s Payments Are 'All Profit'

Sacconaghi pointed to court documents that confirmed that Google paid Apple $1 billion in 2014 as part of an agreement to offer Apple a cut of what Google makes on iPhone and iPad users. Bernstein cited reports indicating a 34% rate. “Given that Google payments are nearly all profit for Apple, Google alone may account for 5% of Apple's total operating profits this year, and may account for 25% of total company OP growth over the last two years," wrote the Bernstein analyst.

 Services Are the Rising Star at Apple | Statista You will find more statistics at Statista

The Street has increasingly focused on Apple’s service business, as the global tech leader expects it to grow on its own to reach the size of a Fortune 500 company and make up as much as 13% of total revenue in 2017. After digging into the filings and extrapolating for the tech firms’ growth since 2014, Bernstein suggests that Google’s licensing revenue is the largest or second-largest contributor to Apple’s service business growth.  

The analyst highlights downside from Google possibly taking a bet on the smartphone maker and backing out of a licensing fee agreement in hopes that Apple will continue using its search engine by default. However, Sacconaghi noted that Apple’s iOS devices comprise a majority of Google’s mobile search revenue, making it a risky decision for the tech giant. (See also: Snap Has a New Competitor: Google.)

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