DoJ Filing Renews Risk for This Big Tech Holding
We'll wait to see if shares hold their current position but we may be able to pick up more of this holding at a discount.
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Shares of Alphabet GOOGL are trading off in response to reports that the U.S. Department of Justice (DoJ) has made recommendations for Google’s search engine business practices, including a possible breakup as a remedy to the August ruling against the company that found it violated the Section 2 of the Sherman Act.
We discussed this at the time, sharing our view that Google would likely appeal, and that effort could potentially drag the process out for years. Near term there is headline risk, but from an operational perspective at Google, there should be little to no impact.
In its filing, the DoJ said it was “considering behavioral and structural remedies that would prevent Google from using products such as Chrome, Play, and Android to advantage Google search and Google search-related products and features — including emerging search access points and features, such as artificial intelligence — over rivals or new entrants.”
To us, that seems like more than a bit of overreach.
Potential Implications for Apple
Additionally, the DoJ suggested limiting or prohibiting default agreements and “other revenue-sharing arrangements related to search and search-related products.”
That would include Google’s search position agreements with Apple’s AAPL iPhone and Samsung devices. Should that come to pass, it could mean Apple would lose billions in “other revenue.”
In 2022, Google paid Apple $18 billion to $20 billion each year over the last several years to remain the default search engine for its Safari browser. That’s a hefty chunk of Apple’s annual R&D spending and if that spending offset is removed, it could result in Wall Street having to trim future EPS expectations. But here, too, it isn’t likely to be something that unfolds in the next year or two.
Judge Amit Mehta said he’ll aim to rule on the remedies by August 2025 and, as we’ve mentioned, an appeal by Google would likely draw out any final impact for years. Let’s remember the antitrust case against Microsoft MSFT spanned the better part of a decade before a settlement was reached.
Our Thoughts on Making a Move With GOOGL
We have some room to add to our GOOGL position in the Portfolio, but with the September CPI and PPI reports set to come later this week, we’re inclined to see if GOOGL shares hold current support levels between $159 to $162 before making any move.
Should the inflation reports not show as much progress as the market expects or otherwise add to the thinking the Fed may deliver fewer rate cuts in the coming months than expected, the market reaction may mean we can pick up some GOOGL shares at an even better price.
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At the time of publication, TheStreet Pro Portfolio was long GOOGL and APPL.
