Google Will Soon Be Told How to End Its Monopoly. What That Means for Apple. — Barrons.com
Dow Jones Newswires ·
By Angela Palumbo
Alphabet investors are anxiously waiting to learn what remedies a judge will order Google to adopt to mitigate its monopoly. Apple investors should be paying attention, too.
A federal judge ruled in August 2024 that Google maintained a monopoly in general search services and general text advertising. This was done through exclusive distribution agreements with browser developers, smartphone makers, and wireless carriers. Wall Street has since been waiting to hear what remedies the judge will put in place to end the monopoly.
J.P. Morgan analyst Doug Anmuth wrote in a research note on Monday that he believes the remedy decision will come by Aug. 8.
"The exact nature & financial implications of the remedy remain difficult to predict, & we believe this uncertainty explains the muted reaction in GOOG/L shares since 2Q earnings," Anmuth wrote.
Alphabet reported better-than-expected second-quarter financials after the stock market closed on July 23, but shares have risen only 0.6% since then, according to Dow Jones Market Data.
One possible remedy would be the banning of exclusive search engine agreements with companies such as Apple. Currently, Google pays Apple, and Apple in turn makes Google the default search engine on all of its devices.
Google has argued in the past that browser companies "should continue to have the freedom to do deals with whatever search engine they think is best for their users."
Anmuth thinks a compromise might be made.
"We see an opportunity for a potential middle ground to be framed in the judgment where Google can make payments to Apple, but only for consumers organically choosing Google as their default General Search Engine," Anmuth wrote.
The outcome is important to Apple. Anmuth believes the company could lose about $12.5 billion in revenue in addition to the profits it currently receives from Google, which could negatively impact earnings by about 10%.
Despite all of the uncertainty, Anmuth rates Alphabet as Overweight with a $232 price target, which implies a 20% increase from the stock's last closing price of $193.18.
"We'd be buyers on any remedy-driven pullback," Anmuth wrote. "We believe the Judge's remedy will provide greater clarity, & while investors are braced for a negative outcome, there is also potential for the remedy to be less punitive than expected."
Shares of Alphabet were down 1% on Monday to $191.22. The stock has risen 1% this year and currently trades at 18.6 times earnings expected over the next 12 months, below its five-year average of 22.1 times.
Write to Angela Palumbo at [email protected]
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