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DOJ's Investigation Of Google 'Important' For Stock, BofA Says

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DOJ's Investigation Of Google 'Important' For Stock, BofA Says

The U.S. Department of Justice is reportedly set on filing an antitrust lawsuit against Google, and the focus of the investigation is "important" for Alphabet Inc's (NASDAQ: GOOG) (NASDAQ: GOOGL) stock, according to BofA Securities.

The Alphabet Analyst: Justin Post maintains a Buy rating on Alphabet with an unchanged $1,850 price target.

The Alphabet Takeaways: BofA's research points to three potential areas of interest for a DOJ investigation, Post said in a Wednesday note: 

Ad tech. Google has a large presence in the display network sector on both the demand side and supply side services, the analyst said.

The company has been accused of unfair practices or acting as a monopoly in this area. This would be easy for Google to remedy through divestitures or simple behavior changes, he said. 

Phone preference. Google boasts a default search position even in Apple Inc. (NASDAQ: AAPL) devices, while Android makers need to have Google software pre-installed on their devices, Post said. Google could be the "most vulnerable" on these Android-related issues, the analyst said. 

Search ad bias. Google has been accused of prioritizing its own services and products when a user performs a Google search. While the company has already been fined in the European Union, wrongdoing in the U.S. could be more difficult to prove, he said. 

The U.S. market is home to alternative search sites: customers are not forced to use Google search and it is free to use, Post said. 

While the Street was expecting a lawsuit, the near-term nature of the case will dictate the stock's reaction, the analyst said. 

In terms of financial damage, ad tech issues are the "least concerning," while phone preferences issues are "more concerning," he said, adding that many users would be happy to simply install a Google app if it isn't preinstalled.

A case on search bias is the "most concerning," since search revenue growth is a key driver for the stock, Post said. 

Litigation could take two to three years to complete, but could be settled at any time, the analyst said. 

A change in the White House administration may or may not make settlement more likely, he said, adding that the Street is not anticipating any material change to Google's financial outlook at this time.

GOOG, GOOGL Price Action: Class A Alphabet shares were down 3.45% at $1,409.39 at the close Wednesday. 

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DateFirmActionFromTo
Aug 2020UBSMaintainsBuy
Jul 2020Raymond JamesMaintainsOutperform
Jul 2020Deutsche BankMaintainsBuy

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