Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) stock continues to be affected by the U.S. Department of Justice civil suit filed back in January, alleging that the company engaged in monopolistic and anti-competitive actions in order to maintain its dominant position in search and digital advertising markets.
The trial, which started in September, is still unfolding. However, in recent days, one analyst has provided their take on the outcomes from the suit, some of which are seemingly negative. Yet, while the outcomes may not be favorable to this company, don’t assume this will be the primary driver for shares going forward. Here’s why.
GOOG Stock, the Trial, and Potential Consequences
So far, the aforementioned antitrust trial has revealed some interesting details about Alphabet’s cash cow digital advertising business. A good example is the revealing of financial details related to the company’s revenue sharing agreement with Apple (NASDAQ:AAPL).
Per the arrangement, the iPhone maker receives 36% of the revenue generated from Google searches on its Safari browser, in exchange for Google being the default search engine on Safari. This search exclusively deal could provide a revenue stream for Apple north of $20 billion annually.
If Alphabet ends up losing this case, and is forced to end its use of search exclusively deals, with not just Apple but with other smartphone makers as well, it could have serious repercussions for the financial performance of these companies. However, what are the potential consequences for this company?
Like I hinted above, one analyst (Bernstein’s Mark Moerdler) has explored this topic, focusing his latest GOOG stock research note on the lawsuit.
In particular, an outcome from this case may be that search exclusivity ends. In turn, all popular search platforms will become pre-installed on smartphones. Per Moerdler, this could be favorable for Microsoft’s (NASDAQ:MSFT) Bing search engine.
An End to Search Hegemony is Less of a Big Deal Than You Think
At first, it may seem like Google’s losing of its search hegemony could spark a further slump for GOOG stock. The company is perceived to be woefully behind in areas like generative AI and cloud computing, and being propped up by the deep competitive moat surrounding its search business.
However, before you dump GOOG, on the view that the beginning of the end is just around the corner, keep a few things in mind. For one, while Moerdler noted that Microsoft’s Bing search engine could gain market share as a result of this lawsuit, the market share gains could be minimal.
While perhaps material for the growth of Microsoft’s search revenue, the resultant loss of market share could be relatively small for Alphabet. That’s not all. As I’ve discussed before, Alphabet may have a chance of coming out ahead, if it’s no longer allowed to pay smartphone makers for exclusivity. Cost savings from this could outweigh modest revenue losses.
Atop these counterarguments, keep in mind something else as well. Despite perceptions, the situation with Alphabet and its respective generative AI and cloud computing businesses is not as dire as some skeptics of the stock would have you think.
The Verdict
Don’t get me wrong. Alphabet still has a lot to prove. It still needs to catch up to first-mover Microsoft in the area of generative AI. Microsoft is seemingly having an easier time growing its Azure cloud computing business than Alphabet is with its Google Cloud segment.
However, additional progress with its generative AI endeavors could quickly change investor perceptions.
As I pointed out previously, Google Cloud is still growing at a moderately high clip (22% year-over-year revenue growth). Investors could, in time, become appreciative again of this fact.
With the antitrust suit, the market’s feeling of uneasy vibes could shift. More could come to the optimistic conclusion about the consequences (cost savings outweigh market share losses).
Any weakness for GOOG stock related to this lawsuit may be a signal to buy, not a signal to stay away.
GOOG stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
