If the federal government were to try to break up Google parent Alphabet Inc. GOOGL GOOG, it would likely take several years and, though it would be a major distraction for management, a federal probe could actually be good for Google’s long-term value, Bank of America said Monday.
Shares of Alphabet were down sharply after the open on Monday following reports late Friday that the Justice Department is preparing to open an antitrust investigation into Google.
“Potential implications for Google could include new regulations on business practices, or an antitrust probe leading to a breakup,” Bank of America analyst Justin Post wrote Monday.
Still A Buy
Post kept a Buy rating on Alphabet, noting it’s not the first time by any stretch that Google has been under regulatory scrutiny, which is likely to some degree already accounted for.
“We don’t anticipate a material change to Google’s business practices or estimates,” Post wrote about the short-term implications.
He also said even if the government were to try to split the company, it would likely take more than five years. Post also pointed to the mid-1990s federal effort to break up Microsoft Corporation MSFT as an obvious parallel and noted the company and its stock did well during and after that effort.
Long-Term benefits
Post said there could be long-term benefits of a Google breakup effort, including an urgency at the company to monetize platforms, better allocation of capital and more operational transparency.
It’s also worth a reminder, Post noted, that the investigation could lead to nothing. He pointed to a Federal Trade Commission probe into Google in 2013 on whether Google unfairly dominated web search rivals. Nothing came of it. There’s still likely to be concern among other FAANG companies, however.
“If the DOJ moves ahead, an investigation would likely embolden critics of Facebook, Amazon and other tech giants as well, causing rhetoric to could heat up during the 2020 election year,” Post said.
Price Action
Shares of Alphabet were down more than 5.5 percent at time of publication to $1,044.
Related Links:
Alphabet's Google Braces For Antitrust Investigation From The Justice Department
The 'Very Difficult' Math And Logic Behind EU's $2.7 Billion Google Fine
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