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Alphabet leads Communication Services stocks lower on Wednesday (along with market declines and a report from Microsoft) Wednesday – (NASDAQ: GOOG) -3.7% (NASDAQ:GOOGL) -3.8% – as it happens to the issues facing Google a second major antitrust suit from the federal government.
For the most part, analysts don’t see Google suffering a financial crisis as a result of the new suit — and probably not anytime soon.
“This regulatory risk may have a very low risk – in terms of the amount of fees (legal fees, regulatory fees), management disruption, and the willingness of the market to sell,” Evercore ISI’s Mark Mahaney said. “So the risk is less for E than for P/E.”
“But it’s real, and it’s not going away any time soon,” he adds, noting that one obvious outcome would be Google being forced or tricked into leaving the Ad Network business, which generates 15% of advertising revenue and 12% of total revenue. Depending on how the round is structured, however, “it could be neutral for GOOGL holders.”
Who would benefit from such pressure, according to Mahaney? The Trade Desk (TTD), Amazon.com (AMZN), Magnite (MGNI), and PubMatic (PUBM) are important competitors or ad/network exchanges that could be good; Meta Platforms (META) is an advertising platform that “does not face negative reviews”; and even Apple (AAPL) is an “interesting vehicle” offered by Apple to try to expand marketing solutions.
Wells Fargo analyst Brian Fitzgerald admits that Trade Desk (TTD) may benefit from “movements against the interests of advertisers,” but that the lawsuit will have no financial impact on labels.
JMP analyst Andrew Boone sees this development as the best for independent platforms, including not only The Trade Desk but also Viant (DSP) and Tremor (TRMR). However, “the results of Google’s main businesses (search and YouTube) are low.”
“This bark can’t bite off the benefits,” Rosenblatt said, noting that rulings and appeals would take years.
Rohit Kulkarni, an analyst at MKM Partners, said there would be no “mid-term problems due to this adjustment,” but it could make Alphabet’s brands “sustainable” in 2023.
Much of this is expected that the company is making a strong defense – and for its part, Alphabet says the lawsuit is without merit and will “defend itself vigorously.”
