Amid a Potential DoJ Breakup of Google, Consider Past Tussles With Tech

* Alphabet shares are lagging the market amid reports the DoJ may aim to break the company up.

* There are potential plans being tossed around, but our thinking is any final outcome is quite a ways off.

* We’ll continue to focus on the fundamentals of Google’s businesses, but keep an eye on DoJ's progress and Google’s responses.

Amid a mixed market Wednesday, one that is seeing a sizable retreat in the Volatility Index (VIX) and nice moves in Dutch Bros BROS following our buy today and Morgan Stanley MS, the laggard is Alphabet GOOGL. Earlier today we chatted about yesterday’s Made By event and why it was constructive for a few of our holdings, but let’s turn our attention now to what is pulling GOOGL shares lower.

The culprit is reports the Department of Justice may look to break Alphabet up following the recent court ruling that the company monopolized the online search market in addition to banning exclusive contracts for search. We’ve all heard about the gobs of money Google has paid Apple AAPL to keep it as the primary search engine on its iOS devices.

Speculation suggests a potential breakup plan would include divesting the Android operating system, which is used on some 2.5 billion devices globally, and Google's Chrome web browser. The focus on Android stems from the agreements Google requires device makers to sign to gain access to various Google apps, such as Gmail and the Google Play Store. Those agreements also require Google’s search widget and Chrome browser be installed on devices in such a way they can’t be deleted. Another reported option would be to require Google to divest or license its data to rival search engines like Microsoft’sMSFT Bing.

Our Thoughts

Whatever the eventual outcome is, we expect that will take a long period of time, likely measured in years. We expect Alphabet/Google will appeal these rulings just like we saw when the DoJ put the bullseye on Microsoft back in the late 1990,s. That suit, which started in May 1998 and looked to break up Microsoft, was eventually settled in mid-2004 following Microsoft’s appeal of the June 2000 verdict and its November 2001 agreement with the DoJ.

If we follow that as a blueprint, it’s reasonable to think we are looking at a while before any final resolution between the DoJ and Google. In that time, we may uncover reasons why we should want to own GOOGL shares, but it’s also possible the shares become overvalued, making them a potential source of cash for the portfolio.

In the near to medium term, which we’ll define as the coming 12 months, we’ll continue to focus on the fundamentals of the search and advertising and cloud businesses, and Google’s AI ambitions. Should the DOJ’s efforts advance more quickly than expected, we’ll take note but having watched Microsoft’s efforts against the DoJ, we’ll also be mindful of Google’s response.

This could very well come down to Google writing a large check and making some modest policy/operations revisions. We’re seeing Apple make such a move by opening up its NFC chip to third-party developers, but to access the software to use the chip, developers will have to enter into a commercial agreement with Apple, commit to its security and privacy rules and pay “associated fees.”

More Pro Portfolio:

At the time of publication, TheStreet Pro Portfolio was long GOOGL, MSFT and AAPL.