Alphabet comes under US antitrust scrutiny… but it has a well-written playbook to draw from
Internet giant Alphabet, the company that owns (and used to be) market-leading search engine Google, has come under fresh antitrust scrutiny. I know what you’re thinking: again? But this time there’s one major difference – the scrutiny is not coming from (relatively aggressive) European regulators, but America’s own Justice Department. This is the first serious antitrust probe the company has faced at home since 2013… but experiences in the European Union (EU) have more than prepared it for the tough questions in its immediate future.
The new probe, along with a litany of minor set-backs, has conspired to send Alphabet’s share price down 8% over the last five days
Source: Yahoo Finance
It’s always difficult to know exactly what’s moving market caps up and down, but there’s a good chance that Alphabet’s current decline is down in part to antitrust worries amongst investors. Speaking generally, this panic is probably driven more by headlines than reality. Popular left-leaning candidates in the upcoming US presidential race have been keen to talk tough on Big Tech, with one such hopeful (Elizabeth Warren) threatening to break up “monopolies” like Facebook.
Beyond political rhetoric, it’s not clear that there’s any risk to these companies’ continued existence in their present form. Luckily for investors, Alphabet has had years of experience honing the arguments that justify its size and power in Europe, where regulators take a harsher view over these things. According to Alphabet, Google is basically a collection of free, and incredibly useful, online services, that deliver access to information for billions of people around the world. The company will tell US regulators that (unlike some of its peers – Hi, Facebook) it doesn’t use any kind of fancy social-economies to encourage people to spend more time on its products. It simply offers the best products in its categories… something that’s hard to argue with if you’ve ever tried to use an alternative search engine!
Additionally, Google knows who the enemy is. It will argue, as it has many times before, that comparing it to other online advertisers is a mistake. Yes, Google dominates that industry… but its business includes various disparate arms such as cloud computing and self-driving cars. As a result, the competitors that Alphabet should be measured against are really the rest of Big Tech – on a global scale. That means Amazon, yes, but it also means Tencent, Alibaba, and others. The question then becomes one of capitalist practicality: do American regulators really want to put Alphabet at a disadvantage to companies like China’s Huawei? Based on recent developments, the answer is almost certainly going to be a resounding “NO”.
Despite all this, investors tend to be sensitive to news cycles, and the result is that Alphabet’s share price is currently “absurdly low” (in the words of regular Tech stock watcher Vince Martin). Other reasons might be helping the share price to sink: an unfortunate outage of Google’s cloud hostage business at the start of this week, a lukewarm reception to earnings last month, continued public negativity following the “tech backlash” of six months-or-so ago. The important thing for investors to note is that none of these things taken in isolation alters Alphabet’s story at a fundamental level: earnings were great if you don’t buy into ridiculous expectations; Google cloud isn’t broken; the tech backlash is a dying beast: people might be angry at the sector, but they’re still using Facebook, Google, Amazon, and more – earnings season made that patently obvious.
The future for Google might have a couple of short-term blips on the horizon – but its long-term story is the same one it had when its share price was some 20% higher at the end of April.
Dominion holds Alphabet in its Global Trends Ecommerce Fund.
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