Google's Antitrust Battle: Stock Resilience Amid Regulatory Storms

As of last week, Google A (GOOGL) rose by 1.79%, marking a three-day rally with a cumulative increase of 5.92%. Over the past week, the stock gained 4.47%, contributing to a year-to-date rise of 13.04%. The current market capitalization sits at $1.938 trillion. On September 12, 2024, Google A's trading volume reached $4.576 billion, ranking eighth among U.S. stocks for the day. This represented a 3.06% increase in trading value from the previous day, with a trading volume of 29.695 million shares.

On September 12, 2024, Google A's shares increased by 2.34%, closing at $154.69. Despite this, the stock has experienced a 1.62% decline over the past five trading days and a 5.32% decrease throughout September. Nonetheless, it maintains a 10.74% rise since the beginning of the year, marking a 13.15% gain over the past 52 weeks.

Alphabet Inc., Google's parent company, faces heightened scrutiny with its second antitrust case. The prospect of business divestiture has led to a historically low relative valuation of the company. Currently, Alphabet's 12-month forward P/E ratio approximates 17.5, trailing the S&P 500's average of about 20.8. This discount, over 3 percentage points compared to the benchmark, is the largest since records began in 2005, largely due to potential business splits driven by antitrust concerns.

In the ongoing legal battle, the U.S. Department of Justice, together with attorneys general from 52 states and jurisdictions, claims Google has been paying significant “marketing fees” to companies like Apple and Samsung to secure its search engine's default status. After four years of litigation, a federal court in D.C. ruled in August that Google has unlawfully monopolized the online search market, violating antitrust laws.

With a second antitrust case now unfolding in Northern Virginia focusing on Google’s digital advertising practices, the threat extends to potentially forcing Google to divest its advertising technology services. This particular sector represents about 10% of Google's total revenue. KeyBanc Capital's Justin Patterson estimates that a complete separation of ad technology could decrease Alphabet's expected 2025 earnings per share by 1% to 2%, presenting a significant challenge.

Despite these antitrust threats, Wall Street sentiment towards Google remains generally positive, with 78% of analysts recommending a buy. Many believe that a full breakup is unlikely, suggesting instead alternative punitive measures, such as limiting Google's payments to companies like Apple. However, analysts have adjusted their views toward caution amid the ongoing regulatory issues.

Since June, Alphabet's stock has dropped nearly 14%, a prominent decline amid shifting market trends and increasing concerns over returns on AI investments. According to reports, a court ruling on Google's antitrust remedies is not expected until August next year, and appeals from Google are anticipated, prolonging the uncertainty surrounding the case.