Alphabet (NASDAQ:GOOGL) stock finally saw the large storm clouds that had been looming for years break yesterday, when a federal judge issued a ruling in the antitrust case pursued by the U.S. Department of Justice against the Internet giant. While it wasn’t all sunshine and rainbows, investors breathed a heavy sigh of relief as the worst-case scenarios turned into a light drizzle.
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For starters, Alphabet faced the very real prospect of being forced to part with Chrome – a possibility so tangible that it even drew unsolicited offers to buy the browser. Another worry centered on the legality of GOOGL’s payments to partners like Apple to keep its search engine as the default on their devices.
Instead, the remedies turned out to be far less severe. Alphabet will no longer be allowed to sign exclusive contracts for the distribution of its products, and it will be required to share some search data with peers. But critically, the company avoided structural breakups or forced divestitures.
All things considered, Baird analyst Colin Sebastian believes that Alphabet got off relatively easy, as the company was spared the “nasty medicine” that could have forced a deep structural realignment.
“We view court-imposed remedies against Google as comparatively benign vs. government proposals and investor fears,” explains the 5-star analyst.
From Sebastian’s perspective, the real headline is that Alphabet keeps all of its business segments intact. Moreover, since the decision is unlikely to be appealed, the analyst even sees potential for Alphabet to renegotiate distribution deals with partners on more favorable terms.
Still, it wasn’t a completely painless outcome. The prohibition on exclusivity and the mandated data-sharing could nibble away at Alphabet’s search dominance.
“We expect Google to face some additional search market share erosion risk as competitors take advantage of the remedies, as intended, along with potentially higher customer acquisition and retention costs,” adds Sebastian.
Even so, Sebastian considers these headwinds to be modest. He estimates less than a 5% hit to revenues and profits and stresses that Alphabet dodged a critical bullet – it won’t have to open the door to GenAI rivals by sharing its most valuable datasets.
That leaves him bullish overall, assigning GOOGL shares an Overweight (i.e., Buy) rating. (To watch Colin Sebastian’s track record, click here)
Overall, Alphabet enjoys strong backing across Wall Street, with 26 Buys and 9 Holds translating into a Moderate Buy consensus. But after the stock’s post-ruling rally, the $216.87 average price target actually implies a ~6% downside from current levels – suggesting analysts may need to revisit their math now that the legal clouds have lifted. (See GOOGL stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.