The U.S. Department of Justice said this week it was considering breaking up search giant Google, news that could pose significant risks to parent company Alphabet’s stock price. On Tuesday night, the U.S. Department of Justice made a recommendation to Google, asking it to limit its monopoly on the search engine business that a U.S. federal judge ruled in August. The Justice Department’s proposal includes “conduct and structural remedies” that would prevent Google from using its products against competitors. The U.S. Department of Justice also said it was considering breaking up the company. Alphabet shares fell about 2% on Wednesday. JPMorgan analyst Doug Anmuth said the Justice Department’s framework on Tuesday was largely in line with expectations. However, he said that “as far as the specific remedies are concerned, they are somewhat broad and not specific,” meaning there could be significant changes to the final remedies the Justice Department will propose on Nov. 20. Alphabet shares JPMorgan Chase said it likely won’t make much change to the Justice Department’s initial framework in the short term. “We don’t think there will be any major surprises, but the preliminary framework presents overall risks and suggests that structural changes or spin-off proposals are possible. … Wall Street’s focus will turn to earnings in the coming weeks and then to the Department of Justice on November 20 final remedies proposed today,” Ames wrote in a report on Wednesday. Multiple Possible Outcomes The Justice Department’s preliminary remedies against Google include limiting or prohibiting default agreements and “other revenue sharing arrangements related to search and search-related products.” Google’s myriad of potential outcomes means the stock’s near-term outlook is unclear. JPMorgan’s Anmuth noted earlier this week that Alphabet shares have lagged the S&P 500 and the company’s Internet stock coverage since a U.S. federal judge’s ruling in August. In fact, Alphabet shares are set to rise 15% by 2024, compared with the S&P 500’s 21% gain. Additionally, Anmuth noted that Alphabet currently trades at about 16.5 times JPMorgan’s 2026 expected earnings estimates, while Meta Platforms trades at more than 20 times its expected earnings. Craig Moffett, co-founder of MoffettNathanson Research, said Wall Street generally believes seller expectations “also remain unchanged.” However, “markets systematically underestimate the risk of adverse outcomes,” Moffitt added. Piper Sandler also believes that any resistance brought by Google’s antitrust case will be “complex but controllable.” A bigger catalyst for Alphabet stock is the opportunity for the company to further reduce headcount and save costs, analyst Thomas Champion wrote in a Sept. 30 research note. —CNBC’s Jennifer Elias and Michael Bloom contributed to this report.
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