Gil Luria, a top analyst from D.A. Davidson said in his recent note on Alphabet (GOOGL) stock that “investors want a big-bang breakup, not isolated spin-offs.” Google is facing looming verdicts from federal judges after it lost two landmark antitrust cases. In the first case, Google was accused of using unfair practices to maintain its online Search dominance. In the second case, Google’s Ad Tech business was accused of anticompetitive practices in the online advertising market.
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The result? The plaintiff in the case, the U.S. Department of Justice (DOJ), is pushing judges in both cases to break up Google’s dominance by asking the company to divest both Google Chrome and its Ad Tech businesses.
Luria has a “Hold” rating on GOOGL stock, with a price target of $160, implying that shares are almost fully valued at current levels. Luria is a five-star analyst on TipRanks, ranking #691 out of the 9,527 analysts tracked. He boasts a 55% success rate and an 11.5% average return per rating.
Luria Says Breaking Up Google Will Unleash Shareholder Value
Luria believes that Alphabet may eventually be compelled to pursue the path of spinning off its Chrome and advertising businesses to please the DOJ. However, he argues that doing it in a “passive aggressive” manner will not benefit the company. The five-star analyst also acknowledges that the breakup would cause “dis-synergies” and that Alphabet’s management is trying to maximize profit at the conglomerate level. Nonetheless, he highlights that investors are much more interested in total shareholder value and not short-term profits.
Luria believes that breaking up Google will “unleash shareholder value,” since the remaining businesses (sans Chrome and Ad Tech) could trade at much higher multiples, comparable to those of Netflix (NFLX), Tesla (TSLA), and Microsoft Azure (MSFT). According to Luria, GOOGL stock currently trades at a 16x P/E (price-earnings per share) multiple, primarily because of its Chrome business. The analyst states that this multiple unfairly penalizes and gravely undervalues Alphabet’s other businesses, such as Waymo, YouTube, and Google Cloud. Hence, breaking up the company could be in the best interest of shareholders.
Additionally, Luria believes that the verdict on Search could take a while, until then the looming threat will persist. Importantly, the top analyst believes that ad revenue from Search could continue to grow for several quarters, until iPhone maker Apple (AAPL) actually changes its default search engine settings, and rival ChatGPT comes in and starts turning on ads. Currently, OpenAI does not allow advertisements on its ChatGPT platform, implying there is very little competition in the space.
Is Alphabet Class A Stock a Buy or Sell?
Wall Street remains highly bullish about Alphabet’s long-term stock trajectory. On TipRanks, GOOGL stock has a Strong Buy consensus rating based on 28 Buys and nine Hold ratings. Also, the average Alphabet Class A price target of $197.69 implies 24.8% upside potential from current levels. Year-to-date, GOOGL stock has lost 16.2%.
