Citigroup's expectations for Alphabet court cases
2min read Citigroup provides a detailed analysis of the potential outcomes of the Alphabet's (GOOG) proposed final judgment (PFJ) in response to the ongoing antitrust litigation over its search distribution practices.
In December 2024, Alphabet submitted its PFJ following the August court ruling, which found that certain search distribution and browser default agreements violated Section 2 of the Sherman Act. Alphabet's PFJ seeks to provide remedies while countering the Department of Justice's (DOJ) broader recommendations, which included measures such as divesting Chrome. Alphabet's strategy is to propose narrower adjustments while maintaining its core competitive strengths.
Alphabet's proposed remedies include three major changes. First, it aims to create more flexible browser agreements that allow multiple default search engines and annual changes to default search providers. Second, it proposes to relax exclusivity requirements in Android contracts, enabling device makers to preload competing search engines, browsers, and AI assistant tools. Lastly, Alphabet suggests a three-year duration for these changes, emphasizing the fast-evolving nature of the technology landscape, compared to the DOJ's proposed 10-year term.
Citi analysts view Alphabet’s PFJ as an effort to minimize disruptions to its search business while addressing regulatory concerns. The narrower scope of the PFJ compared to the DOJ’s proposals suggests Alphabet is aiming to balance compliance with the need to preserve its competitive edge in search and AI-driven innovations. Analysts believe the remedies, if accepted, could mitigate some of the regulatory risks hanging over Alphabet’s stock.
Alphabet's profitability remains robust, bolstered by innovative product launches like Gemini 2 and Imagen 3, which underline its focus on AI advancements. The analysts maintain a "Buy" rating on the stock with a price target of $232, reflecting confidence in Alphabet's ability to weather the regulatory headwinds and sustain growth in key areas like search, cloud computing, and YouTube monetization.
Looking ahead, Alphabet is expected to file a revised PFJ by March 2025, with a two-week remedy trial commencing in April. Judge Mehta is likely to issue a ruling on remedies by late summer, after which Alphabet has 30 days to appeal. The appeals process could extend into 2027 or beyond, adding uncertainty to the regulatory landscape for Alphabet.
Alphabet continues to dominate the search market, with its global share rising to 90% as of November 2024. Chrome browser adoption also remains strong, enhancing its ecosystem. Analysts highlight Alphabet’s strategic focus on integrating AI across its platforms, including Android, Google Cloud, and YouTube, to drive future growth. Regulatory developments, however, could impact these strategies depending on the outcome of the PFJ and subsequent appeals.
Citigroup recommends maintaining a positive outlook on Alphabet shares, citing its leadership in AI innovation and resilience in its core search and advertising businesses. While regulatory risks are acknowledged, the analysts believe Alphabet’s proactive measures and ongoing innovation will enable it to navigate these challenges effectively. Investors are advised to monitor the trial proceedings and potential adjustments to Alphabet’s business model as key drivers of long-term performance.
This summary reflects Citi's balanced view of Alphabet's regulatory challenges and the firm’s ongoing efforts to preserve its competitive edge in a rapidly changing digital landscape.
