The consequences of a possible Google break-up
Financial markets/economy
Posted by MoneyController on 19.08.2024
- 2618
- 4 Follow me
What could be the consequences of a (at the moment unlikely, but possible) break-up of Google by the US government in terms of markets and investors?
How much does Google (Alphabet) risk in its anti-trust confrontation? The worst situation at the moment seems to be that of a break-up that the US government might put in place to break the search engine monopoly. In this regard, Angela Palumbo reports on ‘Barron's’ some considerations of analyst Ross Sandler, who notes a certain optimism among investors, but at the same time believes it is too early to draw conclusions.
Meanwhile, as Palumbo points out, Google's shares are down 6% since the beginning of the month. Not only that: if one takes into account the drop in the stock's value, the market capitalisation has fallen by almost $375 million since its peak on 10 July.
But how likely is it that Google will be fragmented? At the moment, market participants consider this scenario unlikely. Palumbo reports, for instance, what Dan Ives, an analyst at Wedbush, wrote: Ives believes that on the one hand the decision to fragment Google would turn out to be a stretch, and on the other hand Google could still appeal, so that the issue would drag on over the next few years. Nevertheless, Palumbo writes that although unlikely at the moment, this is a scenario that investors cannot absolutely rule out. Although unlikely, it is still possible that Google will be fragmented.
As Mizuho analyst James Lee writes, this could mean a separation of Google Search and YouTube. This would be a problem for the two branches of the company, which today can rely on the pooling of technologies and data. This would certainly not mean their demise, but rather, according to Lee, a downsizing of their value on the stock market: the analyst believes that the value of the shares, which today is seventeen times higher than the gross operating margin, could drop to seven times. The calculation aligns the valuations of the two possible business units with the valuations of Chinese internet companies, which face a far from negligible regulatory risk.
Read also:
