Alphabet Inc. Shares Tumble as Antitrust Concerns Mount

Shares of Alphabet Inc. GOOGL GOOG fell over 6% during trading on Thursday morning in New York. This marks the company’s most significant drop since January 2024.

The decline has resulted in a loss of more than $120 billion in market capitalization, pushing Alphabet’s valuation below the important $2 trillion mark.

Recent Trends: Alphabet Faces Major Decline

Understanding the Drop: DOJ’s Antitrust Moves

This significant selloff follows the U.S. Department of Justice’s (DOJ) announcement regarding its antitrust lawsuit against Google. On Wednesday, the DOJ revealed plans aimed at reducing Google’s control over search and digital ads, changes that could dramatically affect how Alphabet operates.

The most striking proposal is that Alphabet must divest Google Chrome, which holds over 60% of the global browser market. Regulators see Chrome as vital to Alphabet’s dominance in both search and advertising technology. This divestiture would be a major government action against one of the tech industry’s key players.

Additional recommendations from the DOJ include requiring Google to share search data with competitors and ending default agreements that set Google as the automatic search engine on numerous devices and browsers, such as Apple’s Safari.

The DOJ stated, “Google’s unlawful behavior has deprived rivals of critical distribution channels that could allow new competitors to enter the market in innovative ways.”

The Stakes: Alphabet’s Revenue Reliance

Alphabet heavily depends on its diverse services. In the third quarter of 2024, the “Search & Other” segment alone brought in $49.4 billion, which accounted for 56% of the company’s overall revenue.

For the entire fiscal year 2023, Alphabet reported total revenue of $307.4 billion, illustrating its strong reliance on search and ad income:

• Google Search & Other: $175.0 billion
• YouTube Ads: $31.5 billion
• Google Network: $31.3 billion
• Google Cloud: $33.1 billion
• Other Revenues: $34.7 billion
• Other Bets: $1.5 billion

This financial data underscores why the DOJ is concentrating on Alphabet’s most profitable segments. If Chrome is spun off, along with enforced data-sharing and limits on default agreements, Alphabet’s competitive position and profit margins could be at risk.

Expert Analysis: The Road Ahead for Google

Prior to the DOJ’s announcement, RBC Capital Markets consulted with Brian O’Kelley, CEO & co-founder of Scope3 and a veteran in ad tech. He raised important concerns regarding Alphabet’s future amidst these antitrust developments:

1. Shifts in Consumer Preference: O’Kelley highlighted the changing landscape where the notion of an open internet may lose value as more users switch to AI-driven experiences. He remarked that the DOJ’s actions seem focused on the past, not on future trends.
2. The Question of Chrome’s Importance: O’Kelley argued that Google’s core business doesn’t wholly rely on Chrome. He suggested that even without Chrome’s influence, users would still visit Google.com for searches, indicating that Chrome may not be as crucial as it appears.
3. Divergence in Regulatory Approaches: Notably, O’Kelley pointed out that U.S. regulations may lag behind Europe, which is moving quickly to enforce stricter privacy laws. This gap may afford Alphabet additional time to adjust to any regulatory changes.

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